Bitfinex

From CryptoMarketsWiki
Jump to: navigation, search


Bitfinex
Bitfinex leaf logo.png
Founded 2012
Headquarters Hong Kong and Taiwan
Key People JL van der Velde, CEO; Giancarlo Devasini, CFO; Stuart Hoegner, General Counsel
Products Cryptocurrency trading services; cryptocurrency margin trading, cryptocurrency margin funding
Twitter @bitfinex
LinkedIn Profile
Website Bitfinex.com
Releases Company News
Blog Bitfinex Blog

Bitfinex is a major spot and derivatives trading platform for cryptocurrencies. It is closely associated with Tether with which it shares senior management. Like Tether, it is a subsidiary of iFinex, Inc. (a holding company with no official website).[1][2]

Products and Services

The Bitfinex cryptocurrency trading platform offers cryptocurrency and fiat currency trading pairs for a number of currencies, digital and otherwise. Bitfinex supports trading for bitcoin (BTC), Ethereum (ETH), NEO, XRP, EOS, IOTA, Tether (USDT), Litecoin (LTC), Bitcoin Cash (BCH), Bitcoin SV (BSV), and Ampleforth (AMP). It also supports trading for USD, euro, Japanese yen, and the British pound. Bitfinex also supports margin trading.[3]

In November 2019, Bitfinex announced that it planned to launch trading in a gold-backed stablecoin called Tether Gold, as well as perpetual swaps (a derivatives product popularized by BitMEX) and options trading in Q1 of 2020.[4]

Bitfinex is one of the world’s largest cryptocurrency trading platforms.[5] According to CryptoCompare, an online industry data aggregator, Bitfinex was the 42nd largest crypto-asset trading platform by traded volume in late July 2020.[6] Unlike many of its competitors, Bitfinex offers fiat currency-to-cryptocurrency trading on its platform. Bitfinex also provides financing tools that let its customers earn interest by lending deposited funds to other customers in addition to allowing them to trade cryptocurrencies with leverage.[7]

The company launched Bitfinex Pulse, a social networking platform, on April 27, 2020. According to a blog post announcing the new service, "Bitfinex Pulse will enable a verified Bitfinex customer to share his or her thoughts on crypto while also letting a user decide whether pulses are posted publicly." Public posts can be viewed by non-customers.[8]

"LEO" token sale

In May 2019, Bitfinex issued a private sale of "LEO" tokens in order to raise funds to replace the money lost in April. The sale was closed after only 10 days. On May 13 the CTO of the company, Paolo Ardoino, claimed over Twitter that the sale had raised $1 billion since the sale began the previous week. Ardoino claimed that private companies from within and outside of the cryptocurrency industry invested approximately $100 million each, while many individuals invested $1 million or more.[9]

The token sale closed on May 11, 2019. According to a whitepaper put out by Bitfinex, the main commercial use of the tokens are to allow their owners to engage in peer-to-peer trading with other users with reduced fees on Bitfinex and EthFinex, as well as discounts on other platforms under the Bitfinex corporate umbrella. In addition to this, the whitepaper notes "repurpose and burn commitments," which state that Bitfinex intends to use funds recovered from the exchange's recent hacking attacks to buy back LEO tokens from its investors over the following 18 months.[10]

The below is taken directly from the LEO whitepaper:

REPURCHASE AND BURN COMMITMENTS
On a monthly basis, iFinex and its affiliates will buy back LEO from the market equal to a minimum of 27% of the consolidated gross revenues of iFinex (exclusive of Ethfinex) from the previous month, until no tokens are in commercial circulation. Repurchases will be made at then-prevailing market rates. LEO tokens used to pay fees may also be used to satisfy this repurchase commitment.
In addition to the above, an amount equal to at least 95% of recovered net funds from Crypto Capital (described more fully herein) will be used to repurchase and burn outstanding LEO tokens within 18 months from the date of recovery.
Further, an amount equal to at least 80% of recovered net funds from the BitFinex hack will be used to repurchase and burn outstanding LEO tokens within 18 months from the date of recovery.

In June 2019, Bitfinex announced a transparency initiative to make plainly visible its practice of buying back and "burning" LEO tokens as part of its token redemption process, which was dubbed the UNUS SED LEO initiative.[11]

Company History

Bitfinex has its roots in a failed cryptocurrency exchange, Bitcoinica, which was hobbled by two major thefts and scandals. Bitcoinica focused on attracting sophisticated traders and offering them the means to trade fiat against cryptocurrency with financial leverage.[12]

Reliable detailed information about Bitfinex itself is not always been made readily available, and as late as November 2017 even information about the senior officers was not on its website.[13] Bitfinex, based in Hong Kong but also claiming Taipei, Taiwan as headquarters, was founded in 2012.[14][15] According to the legal "Terms of Service," U.S. residents conduct business with BXFNA Inc. d/b/a /Bitfinex.[16] Bitfinex, as well as BXFNA Inc., is now a subsidiary of iFinex, a company registered in British Virgin Islands. [17] Tether, which issues fiat currency-backed digital currencies, is also owned by iFinex and has the same senior officers as Bitfinex. Until November 2017, the relationship between Tether and Bitfinex had been obscure.[18]

Citing difficulties in managing cash inflows and outflows from U.S. customers, Bitfinex announced on August 11, 2017 that it would cease conducting business with individual U.S. residents within the next three months. It also stated that, effective immediately, it would no longer permit U.S. customers to trade certain tokens on its platform in recognition of the guidance from the U.S. Securities and Exchange Commission about the possible status of tokens as investment vehicles under U.S. law. [19] Bitfinex was the first major cryptocurrency organization to take such action.[20]

Stating that Bitfinex is pivoting away from doing business in the U.S., Phil Potter, its long-term American head of strategy, announced his resignation on June 22, 2018, two days after Tether announced the positive results of a review of Tether's U.S. dollar holdings by a U.S. law firm.[21]

On May 31, 2019, Bitfinex announced that it planned to launch support for USDT on the Lightning Network.[22]

Hacks and attacks

On May 22, 2015 Bitfinex warned its customers that it believed its "hot" wallet keys might have been compromised. The company said that losses were small and it would absorb the cost of reimbursements.[23] Outside sources estimated the breach to have resulted in a loss of about 10,500 bitcoins from customer accounts.[24]

On August 2, 2016 Bitfinex announced that bitcoin accounts had been breached and customers' bitcoin had been stolen.[25] Reports pegged the loss at nearly 120,000 bitcoin, then worth about $72 million.[26] A few days later Bitfinex announced that the losses would be "socialized" across all accounts, in part because the actual funds were held by Bitfinex in commingled accounts.[27] Consequently, Bitfinex reduced the value of each customer account, both cryptocurrency and fiat, by 36 percent and replaced the amount with newly minted tokens, which promised repayment of the loss through cash redemption or conversion into equity in Bitfinex. [28] Although by early April 2017 all losses had been repaid, it was noted that if Bitfinex had taken the proper steps to correct deficiencies for which the CFTC had fined it two months earlier, the loss might have been largely prevented.[29][30]

On June 5, 2018 Bitfinex was the target of a distributed denial of service (DDoS) attack and closed its trading operations for approximately one hour. A DDoS attack attempts to overwhelm an online service by flooding a website with fake traffic from multiple computers to disrupt normal activity. The company reported that no customer funds were affected or lost. According to the Bitfinex head of marketing, Kasper Rasmussen,"The attack only impacted trading operations, and user accounts and their associated funds/account balances were not at risk at any point during the attack.”[31]

In June 2019 two Israeli brothers, Eli Gigi and Assaf Gigi, were arrested by the cyber unit of the Israeli Police in connection with the 2016 hacking attacks. The two brothers were accused of hacking the Bitfinex accounts by creating fake websites designed to look like those of prominent cryptocurrency exchanges and wallets. The brothers then allegedly posted links to these fake websites on Telegram channels and online cryptocurrency forums to trick traders into clicking on them. These phishing scams allegedly allowed the brothers to acquire the login information of various traders over a long period of time, which they used to steal "tens of millions" of dollars worth of digital assets.[32]

In January 2020, a U.K. court ordered Bitfinex to freeze $860,000 worth of bitcoin after the cryptocurrency exchange and blockchain sleuthing firm Chainalysis traced those funds to a ransomware payment.[33]

On February 28, 2020, Bitfinex again suffered a DDoS attack on its trading platform which took it off line for about an hour.[34] OKEx, another major cryptocurrency trading platform, reported an attack at the same time.[35]

CFTC fine

In June of 2016 the CFTC ordered Bitfinex to pay $75,000 in fines for a number of violations of US commodity regulations. Among other things, the CFTC noted that Bitfinex was not exempt from the Commodity Exchange Act because its contracts did not result in true ownership and control by the customers of the cryptocurrencies purchased on Bitfinex. Furthermore, Bitfinex solicited and accepted business from persons who were not eligible contract participants.[36]

Leveraged trading

In addition to electronic trading in currency pairs, Bitfinex offers transaction margining, which allows traders to sell short on a forward basis as well as leverage their forward purchases by up to 3.3 times the amount of funds on deposit and available. The mechanics depend on voluntary peer-to-peer lending of funds by customers. The interest rates and terms are negotiated across the platform. Compliance is assured by Bitfinex, which steps in if position losses begin to exceed pre-specified limits.[37] Giving U.S. residents access to these tools without CFTC registration as a contract market provided part of the basis for the fines the CFTC levied against Bitfinex in 2016.

Suspicions about Bitfinex and Tether

The leaked Paradise Papers provided insight into many previously undocumented international business relationships. Among the papers were several that confirmed that Tether was managed by the same individuals that managed Bitfinex. According to published reports, individuals were suspicious that Tether was being used by the managers of Bitfinex to, among other things, prop up the value of Bitcoin. Concern was reported in late 2017 that Tether coins were being issued without the advertised one-U.S.-dollar-for-one-Tether coin backing.[38] Late in January 2018, Bloomberg reported that it had learned that both Tether and Bitfinex had received subpoenas from the CFTC on December 6 of the previous year, although the true subject of the subpoena was not known. [39] At about the time of the subpoena, participants in the industry were becoming suspicious about the fiat currency backing Tether for several reasons, especially as Wells Fargo had severed its banking relationship with Bitfinex, which had not replaced the bank and publicly admitted to having problems securing U.S. banking services for its customers.[40] At the end of January 2018 it became apparent that an audit conducted by an American accounting firm of Tether's cash holdings had been suspended. This was confirmed by a Tether spokesperson.[41] In May 2018 it was reported that U.S. dollar funds backing Tether were held by San Juan's Noble Bank International, an "International Financial Entity" registered there.[42]

On June 20, 2018 Tether reported that it had hired Freeh, Sporkin & Sullivan LLP, a U.S. law firm, to review the adequacy of its U.S. dollar reserves and the firm reported that there were sufficient holdings on June 1, 2018.[43] Tether has said it is still seeking an auditor to conduct a full audit.[44]

Insolvency rumors

In 2018, Bitfinex representatives addressed rumors that the company struggles with insolvency issues. The rumors, which related to Bitfinex's relationship with Tether, its former relationship with Wells Fargo and Noble International, were circulated due to a number of individuals on the blogging site Medium, according to the Bitfinex post. "Bitfinex is not insolvent," the post read, "and a constant stream of Medium articles claiming otherwise is not going to change this."[45][46] This blog post was published a day after it was reported that Bitfinex had entered into yet another banking partnership, this time with HSBC.[47]

Recovery efforts

Asserting that it was a victim of fraud and theft by Crypto Capital, in October 2019 Bitfinex began to move against commercial banks in California, Arizona and Georgia to require them to disclose details of their banking relationships with Crypto Capital. Bitfinex alleged that funds deposited by Crypto Capital accounts at those banks may have been Bitfinex's property. The company said that it was searching for $800 million in mising funds.[48]

Cooperation with U.K. High Court

In the aftermath of a ransom payment by an insurance company after the hack of a Canadian insurance company, the U.K. High Court ordered Bitfinex to provide account data. Cryptocurrency surveillance and forensics firm Chainalysis identified 96 bitcoin from the ransom that were traded at Bitfinex immediately after the payment. Bitfinex told Cointelegraph, "Bitfinex has robust systems in place to allow it to assist law enforcement authorities and litigants in cases such as this. In this case we have assisted the Claimant to trace the stolen Bitcoin and we understand the focus of the Claimant’s attention is no longer on the Bitfinex platform. It now appears Bitfinex is an entirely innocent party mixed up in this wrongdoing." The company did not say if it had complied with the court order.[49]

Litigation

New York State injunction

On April 24, 2019, New York State Attorney General Letitia James obtained an injunction against Bitfinex and Tether as well as their affiliates and iFinex, which operates them, to cease fraudulent activities in dealings with New York residents. A hearing on the injunction was scheduled for May 3, 2019.[50]

In a statement announcing the injunction against Bitfinex and Tether, James said that Bitfinex had attempted to cover up the "apparent loss" of $850 million by removing up to $900 million of Tether's cash reserves. The lost money was a combination of client and corporate funds. Executives of Bitfinex and Tether then allegedly created "conflicted corporate transactions" to hide the transfer of these funds, and credited Tether's cash reserves through the Panamanian firm Crypto Capital Corp. According to James' statement, Bitfinex never signed a contract or other agreement with Crypto Capital while doing this. Correspondence between a senior executive of Bitfinex and representatives of Crypto Capital included the senior executive saying that "this could be extremely dangerous for everybody...BTC could tank below 1K if we don't act quickly." The statement also said that none of these actions were disclosed to investors.[51][52] Bitfinex said the statement was made in "bad faith," and that both Tether and Bitfinex were financially strong.[53]

In an affidavit filed with the New York Supreme Court, Tether's general counsel, Stuart Hoegner, stated that as of April 30, 2019, Tether had cash and cash equivalents of about $2.1 billion which represented approximately 74% of the value of outstanding Tether tokens. Morgan Lewis partner Zoe Phillips, a lawyer who represents Tether, asserted in a memorandum of law that Tether is not required to hold fiat currency on a one-for-one basis with Tether.[54]

Bitfinex investor Dong Zhao announced on Weibo, the Chinese social media platform, that Bitfinex would launch its own exchange token to compensate for the missing $850 million in Tether. Bitfinex says that the funds have been seized by governmental authorities. Once the funds are released back to Bitfinex, it will be able to redeem the exchange tokens according to the plans.[55]

On May 16, Judge Joel Cohen of the state of New York's Supreme Court ordered Bitfinex and Tether execs and employees stop loaning Tether’s reserves to Bitfinex due to the ongoing investigation by the New York AG Letitia James into Bitfinex and Tether.[56] On May 21, The Block published a story on the trial after obtaining a court transcript in which representatives from Tether admitted that some of their "cash equivalent" reserves included holdings of bitcoin.[57]

The same day, lawyers representing Bitfinex and Tether asked Judge Cohen to stay the NYAG's request for documents, claiming the request "onerous," as the companies "have nothing to do with New York investors - the businesses do not allow New Yorkers on their platforms and do not advertise or otherwise do business here."[58] Bitfinex won a partial block on the NYAG's demands for information. Judge Cohen agreed to put a hold on James' demands "except for topics relevant to whether the case can be heard" in his court.[59]

Judge Cohen ruled on August 19, 2019, that New York does have jurisdiction and removed all stays on the NYAG's investigation.[60] Bitfinex appealed the decision to the New York Supreme Court and won a temporary stay on September 24, 2019. The court said that Bitfinex was not required to continue providing documents to the NYAG pending the Supreme Court's decision on whether the case could go forward at all.[61]

On July 9, 2020 the First Department of the Appellate Division of the NY Supreme Court said the NY attorney general could proceed with its case, finding, "The trial court properly rejected the attempts by respondents to limit petitioner’s lawful authority to protect New York residents.”[62]

On September 8, 2020, Judge Cohen issued a mandate that representatives from Bitfinex and Tether attend a video conference on September 17, the purpose of the conference being the discussion the documents detailing business between Tether and Bitfinex, which were requested by the NYAG. Bitfinex and Tether, as well as the NYAG, were also required to submit three-page letters detailing their positions in the case by September 14.[63][64]

Class action against Bitfinex and Tether

In October 2019 Vel Freedman and Kyle Roch, lawyers previously involved in suits against Craig Wright, filed a class-action suit against Bitfinex and Tether, alleging violations of the Commodities Exchange Act and federal RICO statute, among other claims. The suit said that both Tether and Bitfinex engaged in a "sophisticated scheme that coopted a disruptive innovation — cryptocurrency — and used it to defraud investors, manipulate markets, and conceal illicit proceeds."[65] An amended version of the case was filed in June 2020, adding Bittrex and Poloniex to the list of entities that were “knowing participants in the scheme” to transfer large amounts of unbacked USDT between exchanges. [66]

Key People

  • JL van der Velde - CEO
  • Giancarlo Devasini - CFO
  • Stuart Hoegner - General Counsel[67]

References

  1. iFinex Launches iFinex Financial Technologies Limited. Bitfinex.
  2. iFinex Inc.. Messari.
  3. Features. Bitfinex.
  4. Bitfinex to launch options and gold-backed stablecoin. The Block Crypto.
  5. Cryptocurrency Exchanges Pivot to Decentralization to Avoid Overseeing User Funds. ccn.com.
  6. Exchanges. CryptoCompare.
  7. About. Bitfinex.
  8. Bitfinex Pulse Lets Users Connect on Elite Social Network for Traders. Bitfinex.
  9. Bitfinex CTO says the company successfully raised nearly $1 billion in a private token sale. The Block.
  10. Bitfinex CTO says the company successfully raised nearly $1 billion in a private token sale. The Block.
  11. Bitfinex Is Starting to Buy Back and ‘Burn’ Its LEO Exchange Token. Coindesk.
  12. Bitfinex Examined: Inside the Troubled Bitcoin Exchange's History. Coindesk.
  13. Warning Signs About Another Giant Bitcoin Exchange. New York Times.
  14. CFTC Orders Bitcoin Exchange Bitfinex to Pay $75,000 for Offering Illegal Off-Exchange Financed Retail Commodity Transactions and Failing to Register as a Futures Commission Merchant. CFTC.
  15. Bitfinex. LinkedIn.
  16. Terms of Service. Bitfinex.
  17. Bitfinex Examined: Inside the Troubled Bitcoin Exchange's History. Coindesk.
  18. Warning Signs About Another Giant Bitcoin Exchange. New York Times.
  19. Announcements > Service Changes for U.S. Customers (Amended as of August 12, 2017). Bitfinex.
  20. Bitfinex to Bar US Customers from Exchange Trading. Coindesk.
  21. Bitfinex chief strategy officer departs. Reuters.
  22. Bitfinex Plans to Launch Lightning Network Support for Stablecoin Tether: Report. Cointelegraph.
  23. The Official Blog: Urgent action required. Bitfinex.
  24. Bitfinex Warns Customers to Halt Deposits After Suspected Hack. Coindesk.
  25. The Official Blog: Security Breach. Bitfinex.
  26. Bitcoin worth $72 million stolen from Bitfinex exchange in Hong Kong. Reuters.
  27. The Official Blog: Update. Bitfinex.
  28. Every User of This Hacked Bitcoin Exchange Is About to Lose 36% From Their Account. Fortune.
  29. Bitcoin Exchange Bitfinex Completes Reimbursing Customers For 2016 Hack Losses. CCN.
  30. The Demon Barber Of Bitcoin. Forbes.
  31. Crypto Exchange Bitfinex Resumes Operations After Hacker Assault. Bloomberg.
  32. Two Israelis Arrested for Phishing Fraud, Bitfinex Hack. Finance Magnates.
  33. British Court Freezes $860,000 in Bitcoin Linked to Ransomware Payout. Condesk.
  34. @bitfinex. Twitter.
  35. Major Crypto Exchanges Bitfinex and OKEx Hit by Service Denial Attacks. CoinDesk.
  36. CFTC Orders Bitcoin Exchange Bitfinex to Pay $75,000 for Offering Illegal Off-Exchange Financed Retail Commodity Transactions and Failing to Register as a Futures Commission Merchant. CFTC.
  37. Features. Bitfinex.
  38. Warning Signs About Another Giant Bitcoin Exchange. New York Times.
  39. U.S. Regulators Subpoena Crypto Exchange Bitfinex, Tether. Bloomberg.
  40. There’s an $814 Million Mystery Near the Heart of the Biggest Bitcoin Exchange. Bloomberg.
  41. Tether Confirms Its Relationship With Auditor Has 'Dissolved'. Coindesk.
  42. One of the Biggest Crypto Exchanges Is Heading to the Caribbean. Bloomberg.
  43. FSS1JUN18 Account Snapshot Statement. Tether.
  44. Cryptocurrency firm Tether releases law firm report attesting to U.S. dollar reserves. Reuters.
  45. “Bitfinex is not insolvent:” Crypto exchange giant Bitfinex responds to recent rumors in new blog post. The Block.
  46. A Response To Recent Online Rumours. Bitfinex Official Blog.
  47. Major Crypto Exchange Bitfinex Obtains Banking Partner in HSBC, Will it Last?. CCN.
  48. Bitfinex, Tether Seek Subpoenas Across US in Hunt for Missing $800M. CoinDesk.
  49. UK High Court Orders Freeze on $1M of Bitcoin in Ransomware Case. Cointelegraph.
  50. EX PARTE ORDER PURSUANT TO GENERAL BUSINESS LAW §354. Supreme Court of the State of New York County of New York.
  51. Crypto Market Roiled by New Allegations Against Tether, Bitfinex. Bloomberg.
  52. Cryptocurrencies Lose $10 Billion on Tether Cover-Up Allegations. Bloomberg.
  53. Bitfinex Responds to New York Attorney General's Actions. Bitfinex.
  54. Tether Lawyer Admits Stablecoin Now 74% Backed by Cash and Equivalents. CoinDesk.
  55. Bitfinex Is Planning to Issue an Exchange Token, Shareholder Says. CoinDesk.
  56. Tether Lawyer Admits Stablecoin Now 74% Backed by Cash and Equivalents. CoinDesk.
  57. Tether admits in court to investing some of its reserves in bitcoin. The Block.
  58. Bitfinex Argues Why Judge Should Dismiss NYAG Case in Latest Court Filings. Coindesk.
  59. Crypto Exchange Bitfinex Wins Partial Stay on N.Y. Info Demands. Bloomberg.
  60. New York Court Rules That State Attorney Has Jurisdiction Over Bitfinex. CoinTelegraph.
  61. Bitfinex And Tether Win Stay In $900 Million New York Supreme Court Case. Forbes.
  62. Bitfinex Must Face N.Y. Suit Over $800 Million in Lost Funds. Bloomberg.
  63. Untitled. New York County Clerk.
  64. NYAG and Bitfinex to conference with the New York Supreme Court on disputed documents. Bloomberg.
  65. Class action lawsuit against Bitfinex and Tether filed by lawyers who successfully sued Craig Wright. The Block.
  66. Class action lawsuit against Bitfinex and Tether filed by lawyers who successfully sued Craig Wright. The Block.
  67. The World's Leading Cryptocurrency Trading Platform. Bitfinex.