Users complained that BFX.NU restricted withdrawals and even permanently blocked accounts. Is this a dilemma for non-mainstream exchanges?

Wu said blockchain learned that BFX.NU, a contract derivatives exchange that features 500x leverage, was recently complained by a user named L. First, the withdrawal of coins was restricted. After the user posted relevant remarks in the community, the account was even permanently frozen for "suspected of spreading malicious information that defamed the platform." The platform said that the withdrawal restriction was because the user was suspected of engaging in ultra-high frequency short-term trading to disrupt the normal quotation mechanism of the market.

On the 22nd, a rights defender named L suddenly broke into the official group of the old exchange Bitfinex and asked, "Is there any senior leader of BFX who can come out and explain?" The group members and administrators were stunned. After some explanation, they found that he had entered the wrong group. The object of his rights protection was actually a derivatives exchange called BFX.NU.

According to L's statement to Wu Blockchain, he is an old user of BFX.NU and started using the platform last year. On August 2, due to the large fluctuations in the market, L used 500 times leverage and was liquidated several times. He recharged 1,600 USDT successively. At around 12 noon, Bitcoin and Ethereum fluctuated by about 20%. He chased the short position and rebounded to buy more, and the funds reached more than 5,000 USDT.

However, L found that the withdrawal application had not been credited to his account. After asking the customer service, he was referred to the risk control department via email. Finally, they told him to wait for 1 to 3 weeks. L was an old user of the platform, so he was relatively relieved. However, three weeks later, the customer service replied that the withdrawal application was rejected and the application would be observed for a month. He could trade but could not withdraw cash.

On the 23rd, after L had traded a few orders, he suddenly found that he could not log in to his account, and was prompted that his password was wrong. He changed his password but still could not log in. After consulting the customer, he got this reply: The platform monitored that you were suspected of spreading malicious information that discredited the platform. After research and decision by the risk control department, your account handling measures will be audited and your account will be permanently frozen. At the same time, L was kicked out of multiple WeChat groups.

The relevant person in charge of BFX.NU stated that L was suspected of conducting abnormal transactions. The original solution was to allow normal trading, and if there were no more illegal operations within one month, he would be released. However, he wantonly slandered the platform, so his account was blocked.

What exactly is abnormal trading? The person in charge of BFX.NU said that L used the price delays of second-tier and first-tier exchanges to conduct abnormal arbitrage operations. The normal trading of users of second-tier and third-tier exchanges mainly depends on the liquidity provided by the quantitative team. If this behavior is allowed, the cooperating quantitative teams will withdraw one by one, which will lead to worse and worse liquidity of the platform, and normal swing trading users will not be able to trade, affecting the sustainable development of the platform. Frequent opening and closing of positions in a short period of time will be considered abnormal trading.

However, this behavior is not clearly written in the service agreement of BFX.NU. The basis for the relevant person in charge to deal with it is Article 6 of Section 5 of the service agreement, which has the meaning of "overbearing clause", that is, the platform has absolute power to deal with user accounts.

6. You understand and agree that the Platform shall not be liable for any damages resulting from any of the following circumstances, including but not limited to loss of profits, goods, data, etc.:

a. The platform has the right to suspend, interrupt or terminate the provision of the Service or any part thereof to you and remove your information based on unilateral judgment, including but not limited to the platform's belief that you have violated the express provisions and spirit of this Agreement.

b. If this platform discovers abnormal transactions or is suspicious or suspected of violating legal provisions or the provisions of this Agreement, it has the right to suspend or terminate the use of your account without notice (including but not limited to taking restrictive measures such as canceling transactions and adjusting accounts on the funds and transactions in progress under these accounts) and refuse you to use some or all of the functions of this service.

Wu said that the blockchain consulted many staff members engaged in quantitative trading and exchanges, and they generally expressed their incomprehension of this behavior: "This is the first time I hear about such abnormal arbitrage. Arbitrage is based on different markets and different prices." "As long as it does not involve illegal activities such as money laundering, users should not be prevented from withdrawing money."

Mr. Wang, an exchange manager, told Wu Blockchain that second- and third-tier exchanges generally encourage users to arbitrage, because the essence of arbitrage is to improve the liquidity of the exchange. The so-called quantitative institutions have advantages over users in terms of handling fees and request frequency, and should not be disturbed by user behavior.

Wu said blockchain analyst Zhao Yutao said that in layman's terms, the so-called "arbitrage" itself should be the money earned from other users or market makers, and the exchange will not suffer any losses, which is also a normal operation. However, according to the BFX platform, the loss may be caused by the market maker's failure to hedge well.

Zhao Yutao said that second- and third-tier exchanges have limited trading volumes and need market makers or themselves to provide liquidity. In the long run, market makers will not make any profit and will leave the platform, while exchanges are unwilling to spend a high price to introduce new market makers, resulting in poor liquidity and affecting user experience and platform development. This will form a Matthew effect.

In fact, some second- and third-tier exchanges and many well-known financial institutions will use user assets to conduct high-risk leverage operations in the market. Some people from the exchanges also doubted Wu Blockchain whether BFX.NU’s recent high-risk fund operations had some problems and difficulties.

Rongchang also exposed a similar phenomenon on Weibo, where a user was not allowed to withdraw nearly 110,000 USDT.

BFX.NU claims to be established in 2014 and is an old platform in the industry. Last year, it launched platform currency contracts of major exchanges, attracting many players. This year, it attracted many risk-loving "gamblers" with 500x leverage contracts. It ranks 47th in non-small accounts, but is not included in platforms such as CMC and COINGECKO, indicating that the users of this exchange are mainly in China.

On July 24, 2019, BFX.NU announced the completion of its first round of financing, during which it received strategic investments from 12 institutions and angel investors including Lianxing Capital, Mijia Venture Capital, and Neptune Fund.