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Bitfinex Quarterly Update December 1, 2017

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Dec 2nd, 2017
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  1. From Bnktothefuture:
  3. We have BFX's quarterly update here - but before we get into the nitty gritty we just wanted to announce that the long awaited $0.30 per share dividends have been successfully credited to your BF accounts! You will see our fee of 5% and your allocated dividends - both updated in your financials.
  5. Any issues or questions, please do contact our BF Support team:
  9. BF Investor Relations
  12. -----
  14. Overview...
  15. The third quarter of 2017 was yet another record quarter for Bitfinex. We have listed numerous new and existing digital assets, navigated the Bitcoin Cash fork, and have made the decision to disengage from servicing U.S. individuals on our platform. We also continue to increase headcount by hiring additional personnel for customer support, compliance, legal, marketing, and software development. Currently, our headcount stands at approximately 50, inclusive of full- and part-time staff.
  17. Software Development
  18. Many of our technology and related business initiatives were pushed back or reprioritized in the third quarter. With record trading volume comes record strains on the trading platform. As such, we have refocused our energies principally upon platform stability, scalability, and reliability, as 2part of our ongoing commitment to stay ahead of the wave.
  20. Also, we have undertaken short-term productivity investments as we interview, hire, train, and integrate critical new software developers. Consequently, the steady stream of new features and functionality that our users are accustomed to has been replaced with several ongoing, major back-end initiatives that are all scheduled to go into production by the fourth quarter.
  22. They include:
  24. Migration to new database infrastructure to enable much-needed refactoring and bifurcated data warehousing;
  25. Migration to a new matching and pre-trade risk engine;
  26. Deployment of Grenache-based microservices architecture; and,
  27. Process and tools to smoothly handle forking events.
  29. As these projects are completed and we are able to begin new initiatives, we will solicit input from shareholders.
  31. Banking
  32. We continue to experience banking bottlenecks for some customers, but are proceeding to open accounts around the world as part of our ongoing effort to develop a resilient global network of fiat channels. In general, we can say the following:
  34. Big customers continue to move money in and out with little difficulty.
  35. We are nearly done with bringing online an additional U.S.-based bank to service our rapidly growing institutional and OTC customer base.
  37. Depending on the jurisdiction, smaller, retail-type customers continue to present challenges, although we have been steadily processing the backlog of non-US withdrawal requests.
  38. As we continue to normalize fiat operations, we have reduced our minimum withdrawal amount of $50k down to $10k on fiat deposits and withdrawals.
  40. While we have some clear challenges, please note that tens of millions of dollars continue to flow in and out of Bitfinex daily. Although not available to everyone, these fiat flows have been sufficient to keep our market in alignment with other exchanges as we continue to gain market share.
  42. New Fiat Trading Pairs
  43. Although our banking issues have highlighted our need to bring forward other fiat currency trading pairs, we were unable to focus on this initiative in Q3 beyond beta availability for some customers. However, as of mid-November, we were able to launch BTC/EUR with EUR deposits and withdrawals.
  45. New Token Trading Pairs
  46. In the third quarter, we added three new digital tokens: Neo (NEO), Metaverse (ETP), and Bitcoin Cash (BCH). We also added two ERC20 tokens: Santiment (SAN) and OmiseGO (OMG). All five of these tokens have USD, BTC, and ETH trading pairs.
  48. New pair introduction is driven by consumer demand and other projects that Bitfinex believes to be strategically important. Additionally, Bitfinex continues to make small pre-ICO type investments, which will also be listed. If you are aware of projects where Bitfinex can be a valued strategic partner as an investor or as a listing exchange, or both, please introduce us, and we will consider the matter.
  50. U.S. Retail Customers
  51. We have moved forward with our plan to discontinue services to U.S. individual customers.
  53. Verified U.S. individuals represented <3% of our gross revenue, but consume far more than 3% of resources to verify and properly support. As such, we have stopped verifying any new U.S. individuals and have gradually wound down U.S. individual activity on the platform.
  55. Ethfinex
  56. Ethfinex is currently in soft beta, showcasing the new website and the token sale and community features. This will be followed by a rollout of additional functionalities, including non-custodial trading with settlement on Ethereum, the Nectar token, and new ERC20 pairs.
  58. Auditors Friedman LLP continues to work with us towards a balance sheet audit date of June 30, 2017. It is an ongoing process requiring resources that are hard to allocate in a business doing record volumes. Nonetheless, we are committed to the process and believe it will be worth it for our stakeholders, customers, and the wider public. We will present results from the audit as and when they are available.
  60. Negative Publicity & Tether
  61. Bitfinex and Tether, a party related to Bitfinex, have been receiving negative press and social media commentary regarding an alleged lack of transparency and completed audits. This attack is persistent and coordinated, and is based on innuendo, lies, and misdirection. We are staying focused on our business, and getting the audits completed, but it is impossible to ignore the constant stream of defamatory and malicious claims. We are taking concrete steps to improve our communications, including more regularly sharing information and insights, but, for the time being, we want to offer our shareholders some comments that may be useful when encountering critics.
  63. Specifically, much of the online discussion concerns the question “how can tether be created at night and on weekends? Tether has no banking — it must be fake!” While it is true that both Bitfinex and Tether have had banking issues in the last six months, we certainly have had access to banking, but for a limited audience. Since April, the vast majority of all Tether issuances have been occurring through Bitfinex.
  65. Because Bitfinex and Tether have common principals and banking, there is no limit to the timing or amount of money that can flow between the two entities even if inbound and outbound customer wires are limited. Bitfinex holds the vast majority of its customer USD balances in the form of USD bank balances. Bitfinex typically only holds less than 20M Tethers for customer withdrawal. When that balance approaches zero, Bitfinex moves money (typically $20M) from the Bitfinex bank account to the Tether bank account at the same bank in order to purchase additional tether from Tether Limited. To be clear, when this happens, cash is credited (or removed) from Bitfinex’s balance sheet and debited (or added) to Tether’s. This can be done electronically, day or night, on weekends and on holidays.
  67. The reason for the continuing creation of Tethers is simple: demand from verified Bitfinex customers. What are customers using it for? Tether recently added the following page to help answer that question. The principal use case for Tether is exchange arbitrage. Bitfinex simply acts as an aggregator of customer demands for bulk creation and acquisition of Tethers. Its balance sheet impact is completely neutral as to Bitfinex—as to Tether, every issuance of Tethers (a credit to its liabilities) is matched by a corresponding debit, or addition, to its assets, as described above—and has nothing to do with the USD lending market. Also, all of the Tether flows and balances are very transparent, which clearly corroborates the truth. Given Tether’s public and verifiable nature, fraud would be easy to detect if it were to occur.
  69. Breakdown of Revenues
  70. As we indicated in our last update, the bulk of our revenues come from trading fees and, to a lesser extent, from margin funding. Our OTC business continues to be a strong driver of additional revenue. The fees and inventory appreciation in the OTC business continues to have an additional positive effect on earnings as markets remain resilient. It continues to be our policy to ‘dollarize’ digital token revenue through small passive limit orders. However, it can be challenging to do this in a timely way during periods of extreme volatility. While we work hard to passively eliminate excess inventories to minimize exposure, sustained downward pressure on these markets may adversely affect future earnings.
  72. Distributions
  73. It continues to be our policy to distribute all accumulated profits in excess of any reserves,
  74. working capital requirements, contingencies, and funds needed for strategic projects. Although our audit is not yet complete, we are confident enough in our balance sheet (along with a very strong October) to commit to a $0.30 per share distribution for Q3. The record date for the distribution was November 11, 2017. The distribution was paid on November 16, 2017.
  76. Equity Market
  77. Among the many projects that we have had to delay is the launch of the secondary market for iFinex shares. We expect to have a more substantive announcement on this project soon.
  78. Shareholders are, however, encouraged to communicate OTC bids and offers to management.
  79. We will work to find a match for you if possible.
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