Hong Kong-based bitcoin and cryptocurrency exchange Bitfinex provided an update today to its Bitcoin Cash (BCH) distribution calculations. The company said that all corresponding balances have now been credited. Balances were aggregated across wallets with the resulting BCH being credited to each user’s exchange wallet.
What follows is an explanation of the calculations and adjustments used for determining the distribution coefficient:
The Numbers
After the fork, Bitfinex held 101,798.8855 BCH to distribute coming from 131,237.8562 BTC in settled wallet balances and -29,438.9707 BTC in unsettled margin positions, resulting in a distribution coefficient of 0.7757.
However, after adjustments for manipulation attempts (outlined below), the final coefficient used for distributing BCH was 0.8539
The Situation
The intent of the BCH distribution mechanism was to protect Bitfinex lenders who were already locked into loans at the time of the announcement and to avoid distributing negative balances to shorts on the uncertain value of an unproven digital asset.
With this intent in mind, the BCH tokens were distributed with an adjusting factor to account for long/short imbalances in gross margin positions. Accordingly, as shorts would not have to ‘pay’ BCH. Bitfinex says they believe it was fair and symmetrical to not credit margin longs, yielding an adjusting factor that historically seldom varies more than 10% when compared with gross balances.
After the methodology announcement on July 27th, several accounts began large-scale manipulation tactics in an attempt to obtain BCH tokens at the expense of exchange longs and lenders on the platform, causing the distribution coefficient to artificially plummet.
Bitfinex says they have determined that this kind of manipulation – including wash trading and self-funding shorts – is in violation of Bitfinex’s terms of service. Those who intended to take unfair advantage of the circumstances surrounding the BCH distribution at the expense of other users have been sanctioned accordingly.
The Resolution
Upon careful review and analysis, Bitfinex decided to disallow any hedged BTC balances in excess of any such hedged balances that may have existed at the time of the July 27th distribution announcement. The company understands that this may be disappointing to some, however, it is welcome news to the many users with bona fide BTC exposure through settled wallet balances. This adjustment increases the distribution coefficient from 0.7757 to 0.8539.
The Bitfinex team said:
“We do not take this action lightly. The inadequate timelines imposed upon Bitfinex forced swift action when addressing and remediating this situation. Our purpose has been to distribute all BCH to our users in the fairest way possible. Given the aforementioned restrictions, with our corrective actions, we believe that we have made good on that promise.”
The Future
The next step will be for Bitfinex to monitor the forked network and open BCH withdrawals. The company expects BCH withdrawals to be opened within the next 24 hours from August 2nd.
Regarding the possibility of adding BCH trading pairs, Bitfinex says they will continue to monitor the market. BCH deposits will only be enabled if and when BCH markets are created.