What is FCoin and why it’s important and you should know about it
This post started as a message I wrote to my friends on WeChat about a week ago. I didn’t know the CEO then. It came to my attention because our project, ExTrade is in crypto asset management and we have team members watching the market for different asset. FCoin came up during one of our meetings. Within a week, I went from being curious to interested to amazed by the beauty of the design and would love to share it with you all. In the discussion, I haven’t included regulation into account for simplicity purpose.
First of all, in case you don’t know, FCoin is a very new crypto exchange that just launched in late May, 2018. Within two weeks, literally it captured the #1 spot in daily trading volume, not by small margin. Its volume was #2 to #7 COMBINED! It was crazy and created a huge buzz inside the crypto community in China.
Now you ask, what’s so good about it that attracts all the investors? Is it a new decentralized exchange that’s superior to centralized ones such as Binance? Was the volume generated by robots? The answers to those questions are quite astounding. FCoin is a centralized exchange run and governed by a group of people. The volume is legit (each transaction paid 0.1% transaction fee).
So how in the world is it possible? Not just surpass all of those established exchanges in trading volume but also in such amazing speed and quantity.
FCoin created a token economy system that’s non-existent before (some were similar) and in my opinion superior to pretty much all of today’s projects. Before you are triggered, here’s the white paper. I think it’s not as clear so I’ll break it down for you:
- 51% of FT (FCoin’s token symbol) is for public “mining” and 49% for the team, early investors and a fund (basically 49% is allocated to people that has affiliation with FCoin before it’s live). The 49% is locked and has to be unlocked at the same rate of public “mining”. The only way (as of now) to “mine” FT is through trading, as explained next.
- When a user trades on FCoin, all of the fees (0.1% transaction fees per trade) is “reimbursed” to the user the next day in FT, with average price for that time period. For example the user is trading BTC/ETH pair and buys 1BTC worth of ETH. User pays the exchange 0.001 BTC for transaction fee. Average BTC/FT price is 0.001 (1000 FT for 1 BTC) during that time period (for now it’s hourly snapshot), the user gets 1FT for fee reimbursement the next day (not immediately).
- As mentioned above in 1, locked FT is being unlocked at the same rate as the public “mining” portion. So each day the number of FT added to circulation = “mined” FT / 51%. In the this case, about 1.96 FT is added to circulation the next day.
- FT holders of the same period when trade happens gets 80% (now at 100% temporarily) of the exchange’s revenue (0.1% transaction fees per trade generated by trading users) as “dividend”. In the above case, “dividend” = 0.001 BTC * 80% = 0.0008 BTC.
- In order to attract early customers, FCoin had a referral program which gives the person referred the trading user 50% (then 20%, 10% and now it’s 0) of total reimbursed FT amount, which counts into 3 as well.
FCoin encountered many criticisms. It doesn’t take a rocket scientist to figure that the referral fee can be a way of attracting meaningless volume (but real transaction fee) as people will just place large orders at the same price on both sides to get that referral fee for free (referral fee in one account, trade on the other), if the price of FT stays the same the next day (even if it drops, there’s 10% cushion). Within a matter of two weeks, FT/USDT price went from 0.15 to 0.5, and within a week it went to as high as 1.22 then sky dived down to 0.27 gradually within two weeks.
FCoin became the only topic crypto communities talk about for the past two weeks. Most people referred to it as the “FCoin Model” (trading as mining). The press were generally pessimistic about the model. Some even called it Ponzi scheme. CZ from Binance attacked the model and called it as “high price ICO”.
I, on the other hand, loved it. And I have two arguments.
- Let’s start from end game — what is FCoin when all the FT are mined? Apparently, it’s a centralized crypto exchange, just like Binance, OKEX or Bitfinex. Binance and OKEX both issued tokens, BNB and OKB respectively. There is no dividend program for BNB. OKB, I believe it’s 50% of the profit distributed per week. So ultimately, FCoin is just like them but gives its token holders much higher dividends. Seems fine to me.
- If the end game is legit, then problems much be in the process, right? Many press went ahead and done math on how each party is getting however much FT in return for however much the cost, etc. I’m not going to bore you with that. For me, the essence of the model is — You (trading user) provides me (crypto exchange) with what I need (liquidity), which in turn means that you are supporting me in my early stage, I share stake of the project (the token, which contains dividend sharing) with you as a reward. And to me, it’s very much like Bitcoin — You (miner) provides me (Bitcoin network) with what I need (decentralization), I share Bitcoin (stake in the network) with you as a reward. If anyone denies this, it seems like denying how the whole crypto economy works. Even till today there are stories about how Bitcoin could be Ponzi and how much electricity is “wasted” for “doing nothing”, blah blah blah.
For me, FCoin is the only project in the past several years that would remind me to read the Bitcoin white paper over. It’s a great representation of token economy and how communities/marketplace/governance can be one. Are there problems? For sure. The referral fees attracted many arbitrage trading just to get free FT. However, so are GPU and ASICs to the Bitcoin network.
Token holders are no longer “investors” in ICOs to speculate token price. They become the closest beneficiary, by engaging in activities the platform provides. That is amazing.