key takeaways
- CoinFLEX plans to raise $47 million by flagging its bad debt and selling it to non-US sophisticated investors.
- The new token, dubbed “Recovery Value USD” (RVUSD), will fetch a 20% annual interest rate and give holders a chance to claim against the firm’s debt assets.
- Last Thursday, the crypto exchange halted withdrawals after the customer was facing liquidity issues due to failure to meet a $47 million margin call.
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After failing to meet a margin call from a trusted client last Thursday, CoinFlex plans to sell $47 million worth of high-yield tokens to make up for the missing funds and resume withdrawals.
CoinFLEX Will Raise Missing Funds With New Token
CoinFLEX has come up with a new solution to its recent liquidity issues.
The crypto lender announced on Monday that it plans to raise funds by flagging its bad debt and selling it to non-US sophisticated investors. Per the announcement, the exchange aims to raise the missing $47 million of a longtime customer who failed to meet a margin call – by issuing new tokens offering 20% annualized returns.
Last Thursday, the Hong Kong-based cryptocurrency exchange suspended customer withdrawals, citing “extreme market conditions” and “uncertainty involving counterparties.” The unidentified counterparty, which the exchange outlined was not distressed crypto hedge fund Three Arrows Capital or any lending firm, had reportedly gone into negative equity by failing to pay off its $47 million debt.
CoinFLEX noted that under normal circumstances it would automatically eliminate insolvency. However, in this case, the exchange could not do so as the debt belonged to a “high integrity person”. “Significant Instrument” that was previously given a non-liquidation recourse account. This means that the account holder promised a “strict personal guarantee” in exchange for not being liquidated.
“As a solution to re-enable withdrawals, Coinflex plans to monetize this personal guarantee by creating an associated liability in the form of a token called Recovery Value USD (RVUSD),” the exchange said on Monday. according to token white paper, loan repayments from CoinFLEX clients will be converted to USDC, rvUSD holders will be able to convert their tokens to USDC on a pro-rate basis as a new payment. The rvUSD token, which is only available to non-US sophisticated investors, will also receive an annual interest rate of 20% paid per day.
An explanation of the offer in a Monday Interview with bloombergCoinFLEX CEO Mark Lamb said the new offering is a way for the firm to use the token to solve its debt problem. He said:
“We wanted to make it so that the asset is all match, and everything matches, the way it is market-based, and we pass this risk on to investors who understand this risk and are willing to take this risk.” are curious, and basically solve the crisis.”
CoinFLEX’s current liquidity issue comes amid a wider wave of liquidation and solvency issues facing the crypto industry. In early June, cryptocurrency lender Celsius reportedly halted potential bankruptcy filings, withdrawals and internal transfers, citing “extreme market conditions.” Only four days later, on June 17, Asia-based crypto lender Babel Finance also halted withdrawals, citing “unusual liquidity pressures” resulting from the alleged explosion of the now infamous crypto hedge fund Three Arrows Capital.
Disclosure: At the time of writing, the author of this article owns ETH and several other cryptocurrencies.