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Crypto exchange FCoin’s insolvency could be a scam.
A few weeks ago, FCoin founder and former Huobi CTO Zhan Jian announced that it has paused withdrawals and deposits because its capital reserve fell short of its liability between 7,000 and 13,000 bitcoin (or $68 million to $130 million approximately).
Silicon Valley-based blockchain security company AnChain examined the case of FCoin and released a report provocatively titled “FCoin Exchange Shutdown: Technical Difficulties or Planned Scam?”
According to the study, FCoin was the leading exchange by daily trading volume in late 2018. Ironically, its transparency web page is under maintenance. However, the announcement is still visible on Jianshu.com. In June 2018, FCoin publicized its cold wallets for Bitcoin, USDT, and ETH.
However, after examining the cold wallet, it showed that the last transaction was made on Feb. 13, 2020, and the previous one was made four months ago on Oct. 26, 2019. There was no transaction between the two dates. The official FCoin wallet is empty and it has received and sent over 25,350 bitcoins or over $250 million.
FCoin announced a system upgrade, followed by a series of strange withdrawal application announcements suggesting that the exchange may suffer from data loss issues. However, it was made before the Feb. 13 cold wallet bitcoin withdrawal.
AnChain found unusual activities among FCoin’s 40,000 wallet addresses in its exchange wallet infrastructure. It performed 2 quick investigations on 1-hop and 3-hop exchange flows. In 2 hops, the bitcoin flowed into 4 exchanges OKEx, Huobi, Gate.io and Binance. There was no activity between May to August, but there was a spike in September prior to the announcement.
In 3 hops of UTXO transaction flow, the fund reportedly reached 11 exchanges which might be relevant to the suspected cashout activities in the platform. OKEx received most of the funds followed by Binance, Huobi, Bithumb, Poloniex, Bitfinex, Gate.io, ZB, Bitflyer and Upbit.
“Again, the timeline demonstrates a clear uptick of activity during September 2019, peaking in January 2020, immediately before the FCoin shutdown announcement. So, was the FCoin Exchange Shutdown due to technical difficulties, or the culmination of a planned scam? Only the FCoin team would know for sure,” the study concluded.
In Zhang’s announcement, he blamed system error and decision error for FCoin’s insolvency. The system gave away mining rewards to users way more than what they should receive. Meanwhile, the team kept on buying back FT tokens despite its downturn in hopes of increasing its buying demand. Both resulted in a significant loss of FCoin’s asset.
