Bitfinex’s extraordinary $60 million hack earlier in 2016 resulted in major changes at the exchange. The first, and most controversial, was the introduction of the Bitfinex Token (BFX). Essentially, it symbolized the losses of their customers and were issued in 1-1 to USD losses.
What is a Bitfinex Token (BFX)?
The Bitfinex token was created as a way to disperse the exchange’s losses among it’s users. Initially, only the largest accounts were targeted by hackers. Bitfinex decided to spread their loss among all its users, at 33% losses, the token was initially valued at $0.33. Bitfinex tokens are traded exclusively on Bitfinex. Bitfinex reported that the 20 million tokens were issued as equity in Bitfinex’s parent company, iFinex, Inc. In order for Bitfinex to maintain their reputation among this userbase, it to share an equal loss with everyone. The token may sound esoteric, but to many it saved their balances. It represents a token of appreciation for being a loyal Bitfinex customer.
Bitfinex Token Trading (BFX)
Bitfinex traders have been enjoying the ability to trade debt tokens. They may enjoy all the features afforded to the different cryptocurrencies available to trade on the exchange. This includes trading BFX tokens on margin, lending to other traders, etc. This may seem risky, but it provides Bitfinex a chance to recoup their customer losses through exchange fees.
Exchange for Bitfinex Equity
According to the official Bitfinex blog, Bitfinex will offer an exchange of BFX to an equity stake. This may not seem likely due to securities regulations, but who’s going to prove who’s who. Bitfinex doesn’t require identification for cryptocurrency trading, we pointed this out in our review. The equity conversion is applicable only to those who specify they want it by visiting their site. We are hopeful for the future of equity exchange as it may increase customer returns on the lucrative BFX token. We’re equally optimistic and pessimistic to see how this option plays out.
Bitfinex Token Criticism
On the surface, the Bitfinex token appears to encourage users to keep accounts of the site. By socializing their loss, they are preventing many lawsuits from happening that may hold up funds accessible by customers. Despite the many positives there are risks to the BFX token. Essentially all money is debt, Bitcoin is unique as it is impossible to have a negative account balance. The BFX token is tradeable only on Bitfinex’s exchange. Some say this is ridiculous that Bitfinex created an IOU for every customer, while at the same time allowing that debt to be traded. We find it safe to assume Bitfinex makes a majority of it’s money from trading fees. In this case, they are practically paying themselves by issuing a non-proveable asset. The nebuolous nature of this brings many questions. It’s a trade-off we’ll have to wait for the outcome of.
Bitfinex has a Bright Future
Despite the absurdity of trading a loss as debt, the cryptocurrency exchange is noted for its advanced trading features. Margin trading, futures, and options allow cryptocurrency traders to trade like the “big boys”. Although many of these features are too risky/complex for most users, the allowance demonstrates Bitfinex’s willingness to listen to its users for features. Granted, if Bitfinex can maintain a secure system for its users, but at the same time. On the other hand, a large exchange will always remain a target for hackers.
The site has grown steadily since our review and despite the hack, Bitfinex has become the most state of the art and maintained it’s reputation. With the prominence of other (read: more regulated) Bitcoin exchanges, such as Coinbase, Poloniex, etc. will Bitfinex be able to hold its ground?