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It’s the hottest exchange in town, and you’ve likely never heard of it.

It currently has the highest transaction volume in the world, and it’s not even listed on CoinMarketCap.com.

The Rise of FCoin

FCoin, the China based exchange set up by the former CTO of Huobi, Zhang Jian began trading in early May.

It has seen a meteoric surge in volume over the last two weeks. None of this is captured yet by major data outlets, since most of them such as Coinmarketcap.com have yet to add their data feed to their sites.

And it truly is meteoric. You can see for yourself from a snapshot of last 24 hour $volume traded from their website below.

*June 26, 2018, 11AM HKT

Mainstream Zone:

Innovation Zone:

These volumes are taken from the website https://www.fcoin.com and are split into 2 sections:

The “Mainstream Zone” which is a list of major crypto vs USDT pairs along with their very own token FT (FCoin Token) traded. The “Innovation Zone” which trades for a small volume on the lesser known pairs.

FCoin’s Eye Popping Numbers

Yes, your eyes are not mistaken, in the last 24 hours, a whopping $17.3billion USD volume was traded on the exchange .

To put this into perspective, the sum of $ value traded on the top 10 exchanges hovers at around $6 billion

Of the $17.3 billion traded in the last 24 hours, $8.9 billion is on the FT pairs alone! This means that there is a lot of fanfare or at least activity surrounding FCoin Token which accounts for 51.1% of all of the exchange’s volume.

There are a couple of major question marks here. How much of this volume is real (i.e. not wash trading), and how sustainable is this volume. In either case, even if we take a conservative approach and apply a huge discount to the volume numbers, it’s still a very large value being traded.

How Did FCoin Achieve Such Meteoric Growth?

Keep in mind that FCoin exchange started trading some major pairs early May with little to no fanfare and minimal volume, but it wasn’t till around 2 weeks ago when the volume started ramping up exponentially.

So what happened? Simple, the FCoin Token (FT) was born.

In the white paper for FT the major token utilities are described as follows:

Revenue Distribution of 80% Decision Making Rights – smart contract voting on important decisions Election & Supervision Rights – To do with FCoin comminunity members

However the main thing to note is the token distribution method, which they call the ‘Trans-Fee Mining Model’:

Is FCoin’s ‘Trans-Fee Mining Model’ the New Form of ICO?

How exactly does this new model work? When trading on the FCoin exchange, like all other exchanges, you pay a transaction fee of 0.1% of the volume you traded.

Most of the time you pay in the base currency, which for the most part is in BTC or ETH. FCoin at the end of the day then credits your account with the equivalent value in FT, theoretically making FCoin a feeless exchange!

This distribution will continue until 51% or 5.1billion tokens are completely distributed.

Interestingly, if we assume that FCoin volume continues to trade at $5 billion ($17.4 billion a day certainly will die down), at $0.42 as the price of FT, it will take 214 days for 51% of the tokens to be eventually distributed.

Here’s a simple example; you trade $1000 worth of BTC/USDT so your transaction fee would be $1 which you would be debited in BTC. At the end of the day, let’s say FT is trading at $0.5, the exchange will credit you with 2 FT.

Some important things to note:

Transaction fee free does not mean free FT tokens – in essence you are exchanging your BTC & ETH for FT. This is actually a very novel way for the exchange to conduct an ICO on their own token , and with the current volumes it is seeing, it has certainly worked.

The 80% revenue share is potentially very attractive , and coupled with receiving FT tokens, it provides huge incentive for traders to jump on the exchange – why not? They are just paying fees elsewhere.

However, because you exchange ETH & BTC for FT, it means you are effectively taking a risk. If the price of FT drops significantly before you cash out, you effectively will be bearing the cost of trading on the exchange.

The decision for whether traders should switch exchanges boils down to what the price of FT token is, because at a fair valuation, it makes sense to buy and sell your crypto on FCoin since you get something in return – while on other exchanges you are still net paying fees.

What Is the Value of FCoin?

The current price of FCoin (FT pairs trade on their own exchange) is around $0.42, and given a total supply of coins at 10 billion, we are looking at a total supply market cap of $4.2billion.

This is larger than the total market cap of BNB (Binance Exchange Token) which is valued at $2.85 billion.

While we can debate the value of the difference in token utilities, for an exchange that came into existence less than 2 months ago, the ‘Trans Fee Mining’ model has certainly been a success.

A Note On The 80% Revenue Share

One of the main utilities of the token is the 80% revenue share which will start on Aug 2018.

With the huge volume of BTC and ETH already collected via the Trans Fee Mining Model, it makes FT’s revenue share very attractive. This creates a positive feedback loop where users use FCoin to gain FT tokens and the usage gives value to FT tokens, making he trans fee mining model a brilliant “growth hack” for FCoin.

But skeptical observers will wonder how an exchange which distributes 80% of its revenue can effectively run a business. It’s worth noting that FCoin stakeholders hold the other 49% of the supply and will therefore indirectly keep 40% of the revenue.

Binance CEO Takes Notice

FCoin exchange’s meteoric rise has certainly gotten attention from their competitors, as evidenced by Binance CEO CZ’s response to their model published on Weibo.

Here’s a summary for those who don’t read Chinese:

The “Trans-Fee Mining Model” is not o nly an ICO, it’s a very high-priced ICO. Users should act with caution.

You use BTC or ETH to pay for the transaction fee to the exchange, where it pays you back 100% via the exchange tokens. Isn’t it the same with using BTC or ETH to buy the exchange tokens? What’s the difference between this and an ICO?

If an exchange doesn’t charge transaction fee, the only way for them to make a profit is to increase their token price, otherwise they cannot survive. Do you think you could win in this game?

When the tokens get unlocked for the company shareholders, do you think they’ll still have motivation to continue the exchange? From a long-term perspective, do you think this type of exchange is going to be competitive?

Speaking of competition, this model doesn’t have much barrier. Anyone can do it. However, the lower the bar is set for entry, the less professionalism. Some exchanges are claiming that they are going to do 100 franchise exchanges. Soon, it’ll lose value.

Binance protects the users. We don’t use this model.

CZ’s Response continued:

“I realized that math is not your strong suit for many of you. Let me use Binance as an example to do a comparison.

Exchange A: 80% dividend, 0.1% transaction fee. Tokens for shareholders get unlocked at the same rate.

Binance: 0.1 transaction fee, use BNB to get 50% off, plus 40% referral fee.

Say you traded 10,000ETH.

Exchange A gets 10ETH and gives back 8ETH to the community. At the same time, 10ETH got unlocked for the team. So the team gets 12ETH. 50% of the ETH that’s given back to the community is actually given to the team because they should have around 50% of the exchange tokens if they haven’t sold any. Therefore, the team gets 16ETH and the community gets 4ETH dividend.

At Binance, if you hold BNB, we only charge 5ETH, which is 0.05%. 40% of the 5ETH is given back to the person who referred you (don’t even get me started on the case that you referred yourself). So our team only gets 3ETH, no dividend.

Which model is better for you, as a user?

Do you prefer the exchange to take 20ETH from you, then give 4ETH back to you with the actual charge being 16ETH or do you prefer an exchange charge you 3ETH only?

Where did the uncharged transaction fee go at Binance? It’s directly given back the actual trader!

If you think that an exchange offers dividend is a good one because others pay transaction fee and you get the dividend. But do you really think people will keep trading on that exchange for a long time? Who would be this stupid to keep paying the transaction fee? Are the exchange tokens still worth 50 billion? It’s already higher than BNB by 500%.

This is a game to see who dumps the tokens fast.

Industry discipline also depends on user discipline. Don’t blame the exchange when you lose money. Be responsible for the decisions and choices you are making now. If you get out late, don’t blame anyone on not warning you.”

Despite CZ’s criticism, FCoin seems undeterred. They even listed BNB pair in their “Innovation Zone”, which is likely done with the intention of poaching Binance’s client base or at the very least stirring the pot a little – very cheeky indeed.

Will This New Model Survive?

Like with most things in crypto, it’s hard to say whether this “Trans-Fee Mining Model” which has catapulted FCoin to the top will continue to keep it up there.

Furthermore, it remains to be seen whether the 80% revenue share business model will be self sustaining (CZ certainly doesn’t think so), but a few things are for sure:

The “Trans-Fee Mining Model” has been a successful alternative to an ICO in the sense that it has raised funds at a valuation higher than the largest exchange token BNB, and at the same time served as an ingenious customer acquisition strategy by providing incentives for traders to switch to their platform

Even if FCoin doesn’t sustain the top spot, the trading volume they have taken from other exchanges will lead to other exchanges reevaluating their token models and perhaps revising it to provide more incentives to traders. More exchange competition means better terms for traders.

Maybe CZ can finally implement the token utility I suggested.