Author

Topic: [2017-11-22] Summary of Bitfinex's banking issues (Read 1960 times)

newbie
Activity: 119
Merit: 0
November 22, 2017, 03:31:46 PM
#1
On November 19th, USD Tether (USDT) announced that they were the victim of a 30 million USDT theft.

“They” refers to itFinex, a British Virgin Island (BVI) based holding that owns and operates

  • Bitfinex, the largest cryptocurrency exchange by volume
  • Tether Limited, the company that manages the issuance of USDT
Regarding exchange operations, Bitfinex has stalled their USD deposits and withdrawals from US citizens, after complications with the American regulator and intermediary banks, earlier this year.

As such, the Commodity Futures Trading Commission fined Bitfinex in 2016 for “offering illegal off-exchange financed retail commodity transactions”.
Although it is the world’s largest Bitcoin trading exchange, Bitfinex is unregulated and appears to be one of the most vulnerable financial marketplaces in the world.

Consistency: one hack every year

It is not the first time itFinex lost money due to hacking; they already lost 1,500BTC in 2015 ($0.33 mn at the time) 120,000 BTC in 2016 ($72 mn at the time).
itFinex has been remarkably consistent, and managed to get hacked once per year.
At today’s rate, stolen Bitcoins are valued at $1 billion.

Concerns over exchange hacks are nothing new, especially after the Mt.Gox case back in 2014.
Here, the situation appears to be very different, as Bitfinex successfully introduced two tokens:

- BFX - an IOU turned equity token
- USDT - an asset-backed token

BFX Token - forcing victims to become shareholders

After the 2016 hack, the company decided controversially to distribute the losses amongst customers, impacting their portfolio with a 36 percent loss.
To repay their customers, the company entered a confusing (and tokenised) adventure:

  • Bitfinex issued 72 million tokens named “BFX Token”, an IOU priced at $1 per unit.
  • Bitfinex convinced users to convert BFX Tokens for equity in itFinex, the mother company based in BVI.
  • 20 million tokens were successfully traded for equity by October 2016. The decision to set a $200 million valuation remained opaque and at the discretion of itFinex’s upper management.
  • The management team, including Chief Financial Officer, Giancarlo Devasini stated that the fastest way to recover losses from the hack, was “to convert BFX into equity and (to) sell them to another investor”.
  • Bitfinex successfully announces redemption of outstanding BFX Tokens in April 2017.
    For nearly 18 months, Bitfinex users were able to trade, exchange, lend and margin trade the BFX token.

In other words, Bitfinex lost funds after an attack, impacted it on their customers, forced them to become shareholders of their company, and introduced a leveraged market on the token.

Full article : https://www.tropyc.co/news/summary-bitfinex/
Jump to: