$14 Billion: Crypto Exchange BitForex Hits Record Daily Trading Volume With Controversial Revenue Model

Francisco Memoria
  • A little-known cryptocurrency exchnage has recently hit a record daily trading volume of over $14 billion.
  • This as its using a controversial trading volume known as trans-fee mining.

Little-known cryptocurrency exchange BitForex recently made headlines after adopting the controversial trans-fee mining model, which helped its daily trading volume skyrocket to over $14 billion, with its most predominant pairs including Tether’s USDT.

The cryptocurrency exchange recently launched its BF token, which will be mineable through trading. This model, the trans-fee mining model, was first adopted by Chinese exchange FCoin which, at the time, hit a $5 billion daily trading volume with it.

According to CoinMarketCap data, trans-fee mining helped BitForex’s platform as its BTC/USDT trading volume alone is of $8 billion, over 8 times the trading volume of the world’s leading cryptocurrency exchanges Binance, Huobi, and OKEx.

BitForex itself was launched in June and is headquartered in Singapore, although its official registration points to the Republic of Seychelles. Its platform looks modern and asks for two-factor authentication (2FA) to let users trade.

On its website, the exchange claims the BF token’s total supply is going to be of 10 billion, and that token holders will get 80% of collected trading fees.

BitForex will give back 80% of its trading fees to BF holders. In the future, BF holders will have the right to participate in platform building major decisions and community management.

BitForex

The Controversial Revenue Model

The mining model has been adopted by various cryptocurrency exchanges, including Bit-Z, Singapore-based Coinbene, and ViaBTC-owned exchange CoinEx, which saw its trading volume surge 24,000% with it.

Trans-fee mining sees the exchange reward users with their own tokens to pay for trading fees whenever they trade, essentially making trading free on the platform. On top of that, most exchanges distribute part of their revenues as dividends to token holders, presumably in an attempt to raise their value.

The controversial model helps exchanges hit enormous trading volumes thanks to its feeless nature, allowing bad actors to wash trade funds to pump volume. Notably, wash trading is banned in regulated markets as it’s seen as market manipulation.

Moreover, the model attracts high-frequency traders looking to stock up on the exchange’s native token, to then profit off of the dividends they’ll receive from collected trading fees. Once most of the exchange’s native tokens are mined, high-frequency traders move on – FCoin’s trading volume, for example, has dropped to $355 million.

Trans-fee mining has been criticized by various prominent figures in the industry with Binance CEO Zhao Changpeng claiming it’s a disguised initial coin offering (ICO). At the time he said:

“If an exchange doesn't get revenue from transaction fees and solely profits from the price of its token. How would it survive without manipulating the token price? Are you sure you want to play against a price manipulator? The same price manipulator who controls the trading platform?"

Zhao Changpeng

Overstock CEO Sells Shares in His Company to Invest in Blockchain Projects

Patrick Byrne, the chief executive officer of Overstock.com (OSTK), has recently lashed out at investors who questioned his sale of 900,000 of his ‘founders shares’ in the company. Justifying his move, he revealed he needed the funds to invest in blockchain projects.

According to Business Insider, Byrne recently sent a letter to shareholders after the company’s stock prices plunged over 21% this week to their lowest since 2012, after he revealed he sold 500,000 of his shares earlier this week.

On Friday, the CEO revealed he sold an additional 400,000 shares, meaning he sold over 15% of his stake in the company. Although Overstock’s shares recovered on Friday, May 17, Byrne’s letter to shareholders was notable. In it, he wrote:

I simply had to supplement my nominal salary with stock sales in order to fulfill personal commitments to invest personally in blockchain projects such as Medici Land Governance, along with a need to meet charitable pledges.

The CEO added that he doesn’t plan on giving such an explanation again, justifying that he owes shareholders “staying within the law and not making decisions based on inside information, not explanations of my life and projects outside Overstock.”

He noted that the “unanticipated stir” caused by his sale was unexpected, and added “I had no idea that shareholders would demand explanations of why and how I might want to use my cash derived from my labor and my property to pursue my ends in life.”

Byrne is notably Overstock’s largest shareholder, and noted he told investors a year ago he would be making “significant sales” to fund different projects, including those related to blockchain technologies and, presumably, cryptocurrencies.

In fact, the libertarian sold 775,000 of his shares in September of last year, before this week’s sale. The stock’s price has fallen roughly 90% from its record high in January of 2018, when Overstock was benefitting from its cryptocurrency ventures and accompanying the cryptocurrency market’s performance.

In November of last year, Byrne revealed he had plans to sell Overstock’s retail business and go “all-in” on cryptocurrencies and blockchain technology. The CEO’s plan would see the company focus on its fully-owned subsidiary Medici Ventures, which has been invested in blockchain-related startups, after selling its retail business.

Overstock's price performance over the last two yearsSource: Yahoo Finance

Byrne has notably been battling short sellers targeting Overstock, as the firm competes with the likes of eBay and Amazon. Financial analytics firm S3 Partners has estimated short bets against it stand at $157 million, or 50% of its float. This makes it more targeted by short sellers than 99% of companies in the U.S.

Despite the company’s performance on exchanges, Overstock has since launched its tZERO security trading platform, and was one of the first companies to pay a “portion” of its taxes using bitcoin in Ohio.