FCoin has become a lightning rod for opinions surrounding the trans-fee exchange structure. Numerous commentaries were published in the wake of what some liken to an organized Sybil hack on the Ethereum network during FCoin’s launch earlier this year. The sometimes extreme criticism that FCoin received was likely misplaced. FCoin probably wasn’t working in bad faith, despite the fact that their initial voting structure wasn’t ideal for the other users on the network.
CryptoKitties nearly crashed the same system last year, but no allegations of wrongdoing were ever hurled at the adorable online pets. Maybe FCoin should’ve adopted a lovable mascot for their program. Now the exchange has shifted their structure, and no further problems have been caused by FCoin.
In fact, FCoin has moved away from a trans-fee structure altogether.
Now they are using a daily dividend payment to their users, which is designed with the same goals in mind. A statement made by FCoin to Crypto Disrupt describes their new model in these terms, “FCoin is no longer using Trans-Fee Mining! Why you ask? They have moved on to a ‘Daily Dividend’ structure. The way this works, when users use FT for trade fees, users receive 80% of that valuation back in a number of different cryptocurrencies. This transition has been super successful, and on top of that, FCoin has never missed a daily dividend payout.”
The idea behind FCoin’s exchange seems to be centered on creating value for its users and widening the use of cryptos. FCoin founder and CEO Jian Zhang worked as the CTO at Huboi, and FCoin is his attempt to introduce a new exchange structure to a growing industry.
FCoin issues were amplified by a winning model
The world of tokens isn’t easy to shoehorn into existing financial nomenclature. Popular tokens like BTC and ETH have made up the vast majority cryptocurrencies’ market value, so it was possible for exchanges to create their own tokens that they could use as a rebate for using their trading platform.
On paper, the trans-fee model seems like a straightforward arrangement, but some have cited the fact that it is basically an ICO that drives the value of trades on an exchange up. The exchange also shoots up the global rankings, which is a great form of advertising. Instead of having to do loads of promotion for an ICO, an exchange would win-big from a high ranking, as well as gain loads of new users who pump their BTC and ETH into a new exchange’s token.
In traditional finance this arrangement would be nearly impossible, as the trading fees would have to be reimbursed in the same currency that supported the exchange, and thus the arrangement would be impossible to sustain. After FCoin successfully used a trans-fee model to attract a huge amount of new users, there was a spike in other exchanges who employed the same system.
Is a trans-fee model really unethical?
Despite the fact that FCoin has moved past the trans-fee model, they are still associated with a system that seems to invite ire and criticism. To begin with, there doesn’t seem to be anything inherently wrong with a trans-fee model, for a crypto exchange, or any other business. As long as the customers know how they will be compensated for their business, it seems like a trans-fee system is more or less in line with any other rebate or reward scheme.
Earlier this year Jian Zhang addressed the criticism that FCoin was receiving by saying, “If you look back at history, all new things were not recognized at the beginning. Many were believed to be fraud. Jack Ma was recognized as a fraud when he first promoted the internet in China.” Mr. Zhang has also compared tokens to a “stock of the future”, which could be a great way of describing a new asset class.
Most tokens, unlike stocks or bonds, aren’t ownership in anything. The lack of ownership in an underlying asset or debt has been a source of confusion in the established financial system. Mr. Zhang could be correct in asserting that it, “doesn’t make any sense for us to regulate something in the future with existing laws and rules.” He went on to speculate that markets will be administrated via, “public, autonomous regulation.”
Token distribution could be a step toward greater autonomy
In most cases, a token guarantees the right of access. In this sense, Jian Zhang is correct in positing that tokens are something right out of the future. There are some things that exist currently that could be compared to tokens; like a ticket to a carnival ride or vehicle. Unlike the previous examples, tokens can be used globally and offer access to new platforms that are currently being developed all over the world.
Returning the gains made from the use of a crypto exchange to its users in the form of another token is still a novel idea, and probably will help to engender diversity in the token economy. Overall the idea of using rebates and incentives to reward customer loyalty isn’t a new idea, and FCoin may have been on the wrong end of a market that doesn’t have any central authorities.
The fact that the trans-fee model became so popular in the wake of FCoin’s initial success does speak to the vision of their CEO, though some may still dislike the platform because of the headaches and elevated gas prices it caused for some.
Nicholas Say was born in Ann Arbor, Michigan. He has traveled extensively, lived in Uruguay for many years, and currently resides in the Far East. His writing can be found all over the web, with special emphasis placed on realistic development, and the next generation of human technology.