CoinFlex Issues New Fundraising Coin After Investor Fails to Pay Debt

The collapse of cryptocurrency prices and the onset of the so-called “crypto winter” has left many companies in the industry facing a liquidity crisis.

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Crypto exchange CoinFlex on Tuesday released a new fundraising token in an effort to return withdrawals to its customers, after a customer failed to pay off a massive debt.

CoinFlex said it will issue a $47 million digital currency, offering 20% ​​interest, which it calls Recovery Value USD, or rvUSD.

It comes after the company temporarily suspended withdrawals for customers last week citing “extreme market conditions” and “third-party uncertainty.”

On Monday, CoinFlex published a blog post with more details about the counterparty. CEO Mark Lamb said in the post that the longtime customer’s account went into “negative equity.” This prompted the company to halt withdrawals.

CoinFlex under normal circumstances said it will automatically liquidate the investor’s position but the trader has a clause in his account that does not allow this to happen. CoinFlex said that this requirement requires the individual to “pledge strict personal guarantees about equity and margin claims in exchange for non-liquidation.”

The company declined to name the investor, but said the individual is “a person of high integrity with important means, and who is experiencing temporary liquidity issues due to the credit (and price) crunch in the crypto (and non-crypto) markets, with significant contributions to several private unicorn companies and a large portfolio. “.

By issuing the new rvUSD tokens, CoinFlex hopes to raise enough funds to cover the shortfall on its books left by the investor and to resume users’ withdrawals. They offer 20% interest rate to people willing to buy rvUSD to entice investors.

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“We’ve spoken to major potential buyers and believe there is a lot of interest in the terms on offer,” Lamb said.

But part of CoinFlex’s plan is hoping it will be repaid by the investor, which, of course, may not happen. Lamb told Bloomberg on Monday that he believes the investor will repay the company “at some point in the future.”

He added that the company has “alternative mechanisms” in place if it cannot raise funds from the rvUSD issuance, but did not elaborate on what those mechanisms are.

CoinFlex said it hopes to resume withdrawals on June 30. The company said that if the rvUSD token is fully subscribed to, CoinFlex will re-enable withdrawals and restore the platform to full functionality.

Many users were angry with Lamb. On the company’s official Telegram channel, users questioned why CoinFlex did not name the investor, criticized the company’s risk management strategy, and also asked how the company could offer a 20% return on its new currency.

Lamb did not respond to a request for comment when contacted by CNBC via Telegram.

CoinFlex is the latest victim of Significant drop in cryptocurrency prices In the past few weeks, this has wiped out billions of dollars from the cryptocurrency market.

The new so-called “crypto winter” has exposed weaknesses in a number of corporate business models that rely heavily on lending and highly leveraged trading strategies.

Celsius, a cryptocurrency lending platform that promised high returns to users who deposited their cryptocurrency, Withdrawals paused earlier this month. On Monday, a high-profile crypto hedge fund Three Capital shares defaulted on a loan Worth more than $670 million from Voyager Digital.

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CoinFlex’s Lamb promised more transparency in a blog post on Monday. He said the value of each account’s future position would be publicly available through an external audit firm that would attest to these hourly positions. The company will also provide information on the collateral that supports these trading positions. However, CoinFlex said the data will be anonymous.

This data will give users insight into “how risky the platform is, how much users are benefiting from, and whether any filtering is at a loss to the platform,” Lamb said.

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