Comments

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  PaoloDiStef · 27 May 2026 · ▲ 2

  Association View:

  The Frankencoin Association views BGB as a strong but non-standard collateral candidate.

  Because BGB is closely linked to Bitget, it has a different risk profile than existing collateral assets and needs more careful limits. The proposed parameters are acceptable, with the 40% reserve ratio and a conservative global minting limit serving as the primary safeguards for the system.

  The Association suggests adding a 2% risk premium to the base rate, resulting in an effective annual interest of 5.0% on withdrawn ZCHF, and starting with a one-year maturity, allowing the minting parameters to be reassessed within a clear timeframe.

  Reasoning:

  BGB is not a neutral crypto asset like BTC or ETH. It was launched as an incentive token for Bitget users and has since been upgraded to serve as the gas and governance token for Morph, Bitget’s payments-focused Ethereum L2. This means Bitget has a strong incentive to maintain liquidity, credibility and utility around the token. The close linkage to Bitget is however also the main risk. BGB’s collateral quality strongly depends on Bitget’s exchange business and continued commitment to BGB. Additionally, most BGB trading takes place on the Bitget exchange with limited liquidity on other venues. The health and continuity of Bitget’s exchange business is therefore the primary concern for BGB collateral quality.

  Deep Dive

  Bitget presents itself as one of the largest crypto exchanges and is currently ranked #5 on CoinGecko, with 24h trading volume in a similar range as Coinbase. Bitget publishes its reserve ratios monthly, showing the exchange is currently significantly overcollateralized relative to user deposits: https://www.bitget.com/promotion/proof-of-reserve. This provides useful transparency and does not currently indicate solvency stress, but it does not eliminate operational or security risk.

  Although Bitget itself has not suffered a major security incident to date, centralized exchange security incidents are not uncommon and cannot be ruled out. The following two case studies are hence useful reference points for how BGB could behave if Bitget suffered a major security incident:

  Case Study 1 — Bybit hack

  On 21 February 2025, Bybit suffered one of the largest crypto exchange hacks ever recorded at roughly USD 1.5bn. Bybit does not have a direct equivalent to BGB, but the MNT token is closely associated with Bybit and can serve as a rough comparison. After the incident, CoinCodex daily data shows the following MNT drawdowns:

  • 24h drawdown: −13.2%
  • 48h drawdown: −12.4%
  • 96h drawdown: −22.2%

  Even though Bybit suffered from one of the most severe crypto exchange hacks in history, this incident only led to temporary service interruptions on Bybit and a relatively moderate drawdown for MNT. Bybit was able to compensate users after the incident and continues to operate until today. In such a scenario, a 40% reserve requirement would have provided sufficient protection for the Frankencoin system.

  Case Study 2 — FTX collapse

  The adverse comparison is the FTX collapse in November 2022. The FTT token was FTX’s exchange token and lost market confidence very quickly once concerns about FTX’s solvency became public. CoinCodex daily data shows the following FTT drawdowns after 7 November 2022:

  • 24h drawdown: −75.6%
  • 48h drawdown: −89.8%

  This shows that a 40% reserve would not protect against an FTX-style collapse. However, striving to protect against such a tail-risk scenario through the minter reserve with a 90% reserve requirement would in turn make borrowing unattractive. Instead, it is important to define a global minting limit such that an FTX-style collapse by Bitget could not threaten the system’s survival, and compensate FPS holders appropriately for assuming this tail risk.

  Global Minting Limit

  At the full ZCHF 2M minting limit, up to ZCHF 1.2M could be withdrawn. If BGB then fell 90% from the liquidation price, roughly ZCHF 200k of collateral would remain, requiring the equity reserve to cover the other ZCHF 1M. With the equity pool around ZCHF 4.3M as of today, this scenario could currently be absorbed without threatening the system’s survival.

  There are no signs that Bitget would ever face an FTX-like collapse. Still, the BGB minting limit should always remain conservative and well below the size of the equity pool, so that even an extreme Bitget-related event could never threaten the system’s survival. Furthermore, an effective interest rate of 5.0% seems appropriate to compensate the FPS holders for assuming this tail risk, which is achieved by adding a risk premium of 2% to the base rate (3% interest paid on 100%, of which 60% can be withdrawn leads to an effective rate of 5%).

  Liquidity

  Current CoinGecko data shows:

  • BGB market cap: USD 1.40bn
  • 24h trading volume: USD 14m
  • 30d median daily volume: USD 18.8m
  • 365d median daily volume: USD 58.9m

  About 93% of BGB trading volume is on Bitget. Other venues exist, including MEXC, Kraken, Bitfinex and Uniswap v2, but on-chain liquidity is small (Uniswap v2 pool size USD 431k, 24H volume: USD 25k). Liquidity is hence highly concentrated and again closely tied to Bitget’s exchange business.

  Historic Drawdown — 24h and 48h

  Using daily OHLC data from Yahoo Finance and CoinCodex for BGB/USD from 29 July 2021 to 18 May 2026, the largest close-to-close drawdowns were:

  • Worst 24h drawdown: −21.7% (10 May 2022)
  • Worst 48h drawdown: −23.6% (12–14 June 2022)

  In almost five years of trading, the worst 48h close-to-close drawdown has remained well below the 40% mark. The proposed reserve ratio is therefore defensible against BGB’s own price history.

  Intraday Volatility

  However: On 7 October 2024, BGB briefly fell by more than 50%, from about USD 1.20 to USD 0.53, before recovering above USD 1.00 within minutes. Bitget later committed to compensate affected users: https://www.bitget.com/news/detail/12560604254119

  This shows that daily closes can understate short-term stress: BGB has seen an intraday drawdown of more than 40%, even though the price recovered quickly.

  Frankencoin’s slower auction-based liquidation mechanism is helpful here, as flash crashes with a V-shaped recovery give the price enough time to normalise before an auction starts. The October 2024 event would therefore not have created any issues for Frankencoin and Bitget’s compensation efforts underline Bitget’s commitment to maintain confidence in BGB.

  Conclusion

  BGB has a meaningful market capitalization, established trading history, substantial exchange liquidity, strategic relevance to Bitget and Morph, deflationary tokenomics and substantial distribution value for ZCHF. After almost 5 years of trading history, BGB has not had any drawdowns that could have led to a loss for the Frankencoin system, and the Bitget exchange currently appears financially healthy, with strong overcollateralization relative to user deposits.

  The key risk is that BGB’s collateral quality depends on the health of Bitget’s exchange business, warranting a conservative reserve ratio and global minting limit. The Association therefore views a one-year maturity as a reasonable starting point. This would allow for a reassessment of the collateral and its minting parameters within a clear timeframe.

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  luziusmeisser · 01 Jun 2026 · ▲ 1

  Thanks @b3hollis for the proposal and @PaoloDiStef for the analysis. I for one would welcome BGB to the Frankencoin system as an additional collateral.

  As Morph is EVM compatible, it could also make sense to bridge Frankencoin to that network.