A quick look at BFX, the token that Bitfinex is issuing to make its customers whole.

Bitfinex's BitGo wallet system was hacked on August 2nd and 119,756 BTC were stolen from Bitfinex. In response, Bitfinex has had all of its customers take a ratable haircut and given them all a new asset, BFX, to compensate them for that haircut. Here are the details of what the BFX asset is:

To demonstrate [Bitfinex's] commitment [to make you whole to the extent of the full amount of your pro rata portion of the Losses], the Bitfinex Group is crediting to your account a token evidencing a limited-recourse, contingent obligation of the Bitfinex Group. The token is a notional credit, is dependent on the Bitfinex Group’s recovery of Losses, and is subordinated to any claims against the Bitfinex Group not related to the Losses. Recovery may include any of the following: recovery of stolen property; funds raised in one or more financings; and available cash from ongoing operations. The token has been issued to you without reduction of or other release or waiver of any claims you may have against the Bitfinex Group. Similarly, the Bitfinex Group has not waived any claims or defences it may have under the Terms of Use or otherwise should you choose to assert any claims independent of the token. The obligation evidenced by the token bears no interest and is not entitled to dividends, distributions, or other income amounts of any kind. The token is intended to be redeemed to the extent of its ratable share of the recoveries and may in any event at any time be redeemed by the Bitfinex Group at the Bitfinex Group’s sole option for its face value less the amount of any prior redemptions.

Translating that for you, these tokens are IOUs in the event that Bitfinex effects a recovery of assets stolen from Bitfinex during the hack, they will distribute them to the BFX holders. They are debt backed tokens. Sounds great. Let's look at BFX's Roses and Thorns.

BFX Roses

• BFX may be worth par (100% their nominal dollar value, a debt term) if Bitfinex and international law enforcement agencies can track a $65mm Bitcoin thief. History suggests this is unlikely.
• These tokens create a way for Bitfinex or potential acquirers to cheaply assume this debt and retire it. This type of outcome is likely better for Bitfinex's customers than a bankruptcy.

BFX Thorns

• BFX has no cashflows, no dividends, and no profit sharing from Bitfinex.
• BFX aren't consumed or used in any process.
• They have no legal security. The language is very wishy washy. Lenders, which is what BFX token holders are now, have no liens or collateral, have only loosely worded promises. This is crucial and unfortunate and materially reduces BFX value.
• BFX suffers from Bitfinex counterparty risk. If Bitfinex goes under, these coins will be worthless, even if the law enforcement recovers all the stolen BTC in the future.
• US investors cannot buy them. This will make the BFX market substantially less efficient.
• Bitfinex has rushed this.
• Bitfinex has not given anyone a clear look into the accounts, so no on can be sure the haircut was accurate or fair.
• It's unclear how many BFX exist.
• BFX do not exist on any blockchain yet, just in some Bitfinex internal record system.
• BFX's existence and legal standing is so shaky that the token could be unwound or found to be completely illegal. A customer's CLAIM may supercede these tokens. IANAL.

A Simple Formula for What a BFX Token is Worth

P (Probability) the Bitfinex hackers are caught and the BTC recovered AND Bitfinex still remains in business AND Bitfinex honors its loosely worded promises

My guesses

• P Hackers are caught and the BTC recovered in 3yrs = 5% | Evidence: Mt. Gox, DAO hack, general failure to catch crypto hackers, still unaware that Bitfinex is aware how they were hacked
• P Bitfinex remains in business conditional on the above in 3yrs = 70% | Evidence: Exchanges do stop, hacked exchange more so, works out to 10% chance of failure each year, that might be generous.
• P Bitfinex honors its loosely worded promises = 95% | Evidence: bad business not to, but if they are in extremis, who knows, and other creditors may come first.

My BFX price formula with the above inputs works out to 3.3% of par value (3.3 cents on the dollar). As I was writing this, BFX opened for trading and immediately went from 100% to 20% and back up to 40%. Stay safe out there. As always, I would love to hear people's thoughts or own efforts at valuing BFX below. Bitfinex released this so quickly that this is a fast-moving situation. I'll update this piece through the day as my information gets better.

Random Notes

• Bitfinex's CEO wrote: ""With our BitGo wallet solution it becomes impossible for our users to lose their bitcoins due to us being hacked or stealing them."" Just a reminder to never get cocky in crypto or be 100% certain of anything.
• Bitfinex still don't know how the hack happened.
• Bitcoin developer Peter Todd publicly tweeted in the last 2 weeks that 2 different Bitcoin exchanges (Exchange 1 and [Exchange 2])(

  https://twitter.com/petertoddbtc/status/758847731548893188)

  - petertoddbtc

  ) were insolvent and that the customers should remove their money from them. Neither of those exchanges was Bitfinex.
• As a redditor terpnation13 pointed out:"Just want to toss this in...if (big if) BFX actually ends up at or around $1, it will have the 7th or 8th largest market cap in crypto."

Disclosure: I am not a Bitfinex customer. I do not own any BFX. I do own BTC.