CoinFlex launches $47 million token to fix cash crunch

Posted: 28 June 2022 2:55 pm
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The crypto trading company shut down withdrawals last week when a customer couldn’t meet a margin call. The new token asks investors to refinance that debt and offers a 20% reward.

Editor’s note: This story was updated Tuesday afternoon with details on the loan disagreement.

How does a crypto exchange deal with a liquidity crunch? CoinFlex is doing so by issuing $47 million in new tokens.

CoinFlex, a smaller exchange focused on derivative trading, suspended withdrawals last Thursday when an unnamed high-net-worth party couldn’t meet a $47 million margin call.

In a long Twitter thread and an appearance on Bloomberg TV, CEO Mark Lamb outlined the plan to resume trading by June 30. It’s to tokenize that debt with a new coin called Recovery Value USD (rvUSD) and let investors absorb the risk.

A company statement says those tokens will be offered to “only non-US resident sophisticated investors” with substantial income and net worth. So it’s not clear how many everyday investors will be able to buy in — or if other brokers limiting or freezing withdrawals could follow this lead.

The unnamed debtor

The new token promises a 20% return and rides on one unnamed party CoinFlex describes as a “a high=integrity person of significant means, experiencing temporary liquidity issues due to a credit (and price) crunch in crypto markets —and even noncrypto markets — who has significant shareholdings in several unicorn private companies and a large portfolio.”

Normally an account would be liquidated for failing to meet the margin call. But the statement says that customer had an agreement blocking that “in exchange for personally guaranteeing their account equity in writing.”

The question of who that high-net worth person is has fueled speculation online. CoinFlex did say it’s not Three Arrows Capital, a crypto hedge fund in default on $670 million in loans, or “another lending firm.”

Buyers of the new token would be repaid over 15 months with interest in the stablecoin USDC, and could be bought out if that deadline isn’t met.

The money raised now would go to restart withdrawals from CoinFlex.

“We’ve spoken to a significant amount of private investors such that we think that at least half of the issuance is going to be subscribed for,” Lamb told Bloomberg News.

However, the story took a twist later Tuesday, after noted crypto investor Roger Ver publicly denied he was the individual involved. “Recently some rumors have been spreading that I have defaulted on a debt to a counter-party. These rumors are false,” he tweeted.

Lamb took to Twitter with a series of posts that said Ver “owes CoinFLEX $47 million USDC.”

Unique situation?

CoinFlex isn’t the only crypto broker to recently freeze or limit withdrawals. Most notably, Celsius’ ongoing freeze reportedly has put a hold on as much as $8 billion in deposits.

With the total crypto market cap down by some two-thirds since the fall and after the collapse of the Luna ecosystem, losses are running deep and liquidity tight in general with crypto brokers and market makers.

So far CoinFlex’s situation is unique in that it’s blamed on one risky loan, which it thinks can be addressed with one token.

Lamb told CNBC he’s not concerned about a wave of withdrawals when CoinFlex opens withdrawals. But that’s another risk.

Some of the responses to the plan on Twitter questioned why CoinFlex wasn’t identifying who the troublesome investor was. Others asked if 20% interest is really doable. But there’s no way to know if they came from people who have money at CoinFlex and might take that cash elsewhere.

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