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The Bailout Plan for smartBCH’s centralized bridge run by CoinFLEX

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Written by   171
5 months ago

Dear smartBCH users:

As you have already known, the smartBCH community is in an urgent situation. The centralized bridge maintained by CoinFLEX is stuck now. And the native token on smartBCH, which will be referred to as "sBCH", is not 1:1 anchored to BCH on the main chain.

As a decentralized bridge between the main chain and side chain has taken and will be taking more time to develop, smartBCH has relied on a centralized bridge, which had been run by CoinFLEX. CoinFLEX helps the custodian of cross-chain BCH. It never owns the BCH, nor do the smartBCH users lend BCH to CoinFLEX. CoinFLEX just keeps the smartBCH users’ BCH and when they exit the smartBCH side chain, they can get back the BCH from CoinFLEX. This mechanism worked fine until this recent crisis.

This 1:1 BCH to sBCH backing was sold to the public in the form of a bridge, and the public always understood it to be a senior secured claim on the BCH. In fact, most of the BCH-to-sBCH depositors are not even clients of CoinFLEX, as it was not required to open a Coinflex account in order to use the bridging service. Therefore sBCH holders cannot legally be categorized into the same class of creditors as normal CoinFLEX depositors.

Now there are 101,382.3 BCH holding in the Bitcoin Cash main chain treasury address 18rP7bbiLiqVnFs47Hin2q1Fhb6SuMAdVo controlled by CoinFLEX. The bridge’s custodian BCH is owned by the smartBCH users, not on the balance sheet of CoinFLEX. Even if CoinFLEX goes bankrupt, it must return these coins to the users.

The smartBCH community has kept talking with CoinFLEX. CoinFLEX has shown its cooperative attitude (but no actions), however, it is concerned about potential legal liability should it transfer BCH in its custody while it is still in the midst of addressing its financial issues. As a result, it is unable to open the bridge now. And we have got no guarantee about when it can be opened.

So, the cross-chain BCH are still in the treasury address, but they will be stuck for an uncertain time. The smartBCH users are facing risks and uncertainty.

To help users of smartBCH immediately, some BCH supporters are setting up “The Bail-Out DAO” (BODAO). BODAO will raise BCH to provide smartBCH users 1:1 exiting option to the main chain. After BODAO successfully owns 101,382.3 sBCH in total, it will have the right to claim all the 101,382.3 BCH on the treasury address. The BODAO will use every possible measure to get these BCH back, including raising an extra 101,382.3 sBCH as financial resources to sue Coinflex, its founders, directors, and other immoral creditors of Coinflex who want to touch our precious coins.

CoinFLEX is aware of BODAO. Privately, they have said some nice things about BODAO and apologized to the smartBCH community for halting the bridge. We hope they can speak directly to the public, so we do not copy their words here.

The organizers of BODAO are working hard on the details and several BCH whales have shown their interest. We the developers will soon enable a temporary centralized bridge between the main chain and the side chain, through which users can exit to the main chain with the liquidity provided by BODAO.

BODAO will issue a governance token SCG to encourage people to join it. The smartBCH chain is also planned to be updated to empower SCG.

We will remove the 50% voting power from SHA256 miners to the SCG token holders. At such a crisis, only BCH/sBCH holders can do themselves a favor to bail out themselves. In the future, the validators' role on smartBCH will always be elected by the SCG token holders and the sBCH holders. SCG holders will have 25% voting power, and sBCH holders will have 75% voting power.

A portion of the (currently) burnt gas fee on smartBCH will no longer be burnt. Instead, it will be used to buy SCG back and burn SCG tokens. The ratio of the portion will start at 50% of the burnt gas fee (25% of all the gas fee). Such ratio will be kept as a consistance until a chosen time in the future, and then it will be reduced continuously at a speed of 30% reduction per year.

We call for BCH/sBCH owners to join the BODAO. We also need legal experts joining us to prepare the legal actions. If you are interested, please contact @cheaplightning on telegram.

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Written by   171
5 months ago
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Comments

In fact, most of the BCH-to-sBCH depositors are not even clients of CoinFLEX, as it was not required to open a Coinflex account in order to use the bridging service.

Does anyone have a link to the original claim for this arrangement? It would have been sometime last year before the bridge went live? Probably around August '21. I KNOW it was said, but I'm just wondering if it was EVER confirmed by anyone from CoinFLEX.

fwiw, CoinFLEX just posted this (https://coinflex.com/blog/coinflex-update-july-9-2022/) and shit is about to get real! as Mark & Co. are now threatening to liquidate ALL of the "escrowed" $BCH to help them payout their customers a measly TEN PERCENT of their holdings..

$ 0.00
4 months ago

Now i am on learning stage of these things.

$ 0.00
4 months ago

Sorry but I would not help nor recommend this either, the best thing will be to take the loss and learn next time and ask SmartBCH developers to put a better bridge before starting anything again, without a bailout the developers of SmartBCH will know that when money is lost it is a serious matter and that they should have had the Sha-gate v1 up and running since a long time ago.

$ 0.00
5 months ago

Here is an alternative Bailout plan. Appreciate ANY constructive feedback either positive or negative.

https://github.com/smartbch/smartbch/issues/64

$ 0.01
4 months ago

I need to learn all about it so I'll keep observing.

$ 0.00
4 months ago

Thanks for sharing nice informative article.

$ 0.00
4 months ago

Who owns the BCH that is being kept by CoinFLEX?

$ 0.01
5 months ago

The holders of bch on smartbch.

$ 0.01
5 months ago

Take the loss. The centralized bridge failed because of bad planning and greed. Now it seems like your are in a panic with some complicated token scheme.

Why would this plan work when your last one failed so spectacularly?

Any time developing should be spent on making the decentralized bridge that was promised "shortly after the update"

$ 0.00
5 months ago

Been working on an alternative Bailout plan. Would appreciate ANY constructive feedback either positive or negative. fyi, I expect to "officially" release this in the next 24 hours..

https://github.com/smartbch/smartbch/issues/64

$ 0.01
4 months ago