A New Vision: Ethfinex
One year ago today Bitfinex was hacked, in what will always represent the darkest day in our history.
8 months later we completed the final round of redemptions to reimburse funds, and we are grateful to our customers and shareholders who allowed us to accomplish this.
Today, after a long road to recovery, we are happy to announce Ethfinex – a community & information hub to facilitate Ethereum-based discussion, analysis & trading.
Our vision for Ethfinex is rooted in the events of the past year, and we are excited to be able to share this moment with all of you.
History of Bitfinex
Bitfinex is the world’s largest, most advanced digital asset & cryptocurrency exchange. Bitfinex has, since its inception in 2012, been the go-to exchange for BTCUSD trading, capturing over 20% of total trading volume whilst providing liquidity in a diverse set of markets.
Bitfinex developed its positive reputation due largely to its peer-to-peer financing facilities which went a long way to provide & maintain liquidity. Innovative & valuable, this feature facilitated a unique approach to financed trading and, amidst declining volatility, gave serious traders a reason to choose Bitfinex over others.
On August 2nd 2016, one year from today, Bitfinex became the latest victims of a crypto-exchange security breach. 119,756 Bitcoins were stolen from customer accounts, totalling 72m USD at the time, representing the largest theft of Bitcoins after the notorious Mt Gox incident. The breach contributed widespread uncertainty and frustration throughout the Bitcoin ecosystem and raised serious doubts as to the safety of centralised exchanges.
The volume of stolen Bitcoins amounted to nearly 0.75% of total circulation – significantly more than in active use on the Bitfinex platform at the time. Due to Bitfinex’s relative popularity, a huge subset of the Bitcoin trading community was affected and BTC prices suffered an immediate 20% drop.
Transformation & recovery
Shortly following the hack, Bitfinex announced the creation and distribution of the BFX token – a debt-backed token designed to represent users stolen equity – in a novel attempt to reimburse stolen funds.
Stolen funds were socialised across users and assets, resulting in an equal, widespread 36% loss of assets, and users were credited BFX tokens in an amount equal to the dollar value of their losses. These tokens presented users with the choice of conversion to equity in Bitfinex, the potential reimbursement of losses through the future operating profits, or the ability to immediately trade these tokens at market rate.
Given the history and track record of exchanges following security breaches of this magnitude, the BFX tokens were initially, and rightfully so, met with scepticism and uncertainty despite its widely recognised potential.
Slowly but surely, confidence was restored in Bitfinex and the Bitcoin ecosystem. BTC prices recovered, trading volumes returned to (and hammered through) previous levels, and faith was being placed in the BFX token and its ability to redeem losses.
On April 3rd, 8 months after the security breach, Bitfinex announced the systematic redemption of 100% of all outstanding BFX tokens, essentially reimbursing lost funds.
Despite the efforts and achievements of Bitfinex in compensating losses, the community was left shaken, and the inherently paradoxical nature of centralised cryptocurrency exchanges was being questioned. The need for true decentralisation in the name of security & customer protection was hammered home, and the BFX token was an unintended, involuntary demonstration of how to go about achieving this.
The need for decentralisation
The BFX token proved a powerful lesson in the capacity of exchange decentralisation. With an indirect stake in the survival, recovery and future success of Bitfinex, users continued trading on the platform despite initial doubt. This, in turn, led to a steady recovery of volume and liquidity, contributing further value to the BFX token. The benefits this cycle brings to any platform dependent on network effects (as most exchanges are, for liquidity purposes) was clear.
Centralised exchanges have so far been a necessity; a gateway into an inaccessible, arcane ecosystem, and a stable, familiar bridge between fiat and digital assets. They are user-friendly, provide speed and convenience of liquidity in a manner that users have come to demand.
The true value, vision and potential of blockchain technology is a product of decentralisation, and the idea that exchanges should be exempt from this is nonsensical given its vulnerabilities to centralisation.
A New Vision: Ethfinex
This is where Ethfinex comes in.
Spun out of Bitfinex, Ethfinex brings with it the vision of a customer-centric and highly liquid digital asset exchange platform. Ethfinex will be a hybrid community and information hub for developers, traders and enthusiasts alike, designed to facilitate discussion, development and trading in the Ethereum ecosystem.
Tokens and tokenised assets on Ethereum are fast proving themselves to represent one of the most exciting innovations of the decade, with the potential to displace traditional business models and revolutionise financial infrastructures. The core value of these tokens is often the communities around them but, following the rapid growth of the ecosystem, these communities tend to be dispersed, with credible information difficult to find, analyse, and keep track of.
Ethfinex offers a new community and information hub for these tokens, designed to facilitate learning, discussion, and analysis whilst simultaneously offering access to the most highly liquid and advanced trading platform for Ethereum ERC20 tokens.
The Ethfinex platform will reflect the nature of the Ethereum community itself: building smart contracts and decentralisation increasingly into everything it does, and providing tools and modules necessary to interact with, and contribute back to other projects in the ecosystem.
The long-term vision is to move towards a completely trustless exchange, with gradual decentralisation of ownership to its community of users.
Based on Bitfinex’s trading engine experience and customer base, we believe that fully decentralised models for exchange are not yet mature or scalable. To accelerate the development of on-blockchain exchanges, the Ethfinex platform will pioneer a hybrid decentralised architecture, allowing decentralised exchanges to plug into it and trade with Ethfinex customers, as well as each other. Ethfinex will encourage the emergence of scalable and trustless solutions by acting as an experimentation zone for emerging decentralised exchange protocols, providing feedback and allowing them to test and learn.
Built by the Ethereum community, for the Ethereum community, Ethfinex will be the world’s most liquid, customer-centric digital asset exchange & information platform.
To find out more please join our community, and help lay the foundation for a decentralised future.
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