CoinFlex, a cryptocurrency exchange, introduced a new token on Tuesday to gather funds in order to resume withdrawals for its users after one client failed to repay a significant debt.
CoinFlex announced it would issue a $47 million digital coin with a 20% interest rate called Recovery Value USD, or rvUSD.
It comes after the business halted customer withdrawals last week due to “extreme market conditions” and “uncertainty surrounding a counterparty.”
CoinFlex published a blog post on Monday with additional information regarding the counterparty. In the post, CEO Mark Lamb stated that a long-term customer’s account had “negative equity.” As a result, the firm halted withdrawals.
CoinFlex stated that under typical circumstances, it would automatically liquidate the investor’s stake, but the trader’s account contained a condition that prevented this from happening. The individual was asked to “pledge severe personal assurances around account equity and margin calls in exchange for avoiding being liquidated,” according to CoinFlex.
The investor was not identified, but the company stated that he or she “is a high-integrity person of significant means, experiencing temporary liquidity issues due to a credit (and price) crunch in crypto markets (and non-crypto markets), with substantial shareholdings in several unicorn private companies and a large portfolio.”
CoinFlex hopes to generate enough money by releasing the additional rvUSD tokens to offset the shortfall in its books caused by the investor and resume withdrawals for users. To encourage investors, it is providing a 20 per cent interest rate for those willing to acquire rvUSD.
“We have been speaking to potential large buyers and believe there is significant interest in the terms presented,” Lamb said.
However, part of CoinFlex’s strategy is to hope that the investor repays it, which may or may not occur. According to Lamb, the investor will return the company “at some time in the future,” according to Bloomberg.
He also stated that if the corporation is unable to acquire funds through issuing rvUSD, it has “other channels,” but did not expand.
CoinFlex expects withdrawals to resume on June 30. If the rvUSD token issuance is completely subscribed, CoinFlex will re-enable withdrawals and bring the platform back up to speed, according to the business.
Many users were upset with Lamb. Users in the company’s official Telegram channel questioned why CoinFlex did not name the investor, criticised the company’s risk management policy, and wondered how the company could provide a 20% yield on its new coin.
CoinFlex is the latest victim of the recent dramatic decrease in cryptocurrency values, which has wiped billions of dollars from the digital coin market.
The current “crypto winter” has uncovered flaws in a number of organisations’ business models, which rely primarily on lending and highly leveraged trading tactics.
Celsius, a cryptocurrency loan company that promised significant returns to consumers who invested cryptocurrency, halted withdrawals earlier this month.
On Monday, the high-profile crypto hedge fund Three Arrows Capital defaulted on a debt from Voyager Digital valued more than $670 million.
In a blog post on Monday, CoinFlex’s Lamb pledged increased openness. He stated that the value of each account’s futures position would be made public via an external audit firm that would attest to these positions every hour. The corporation will also provide details on the collateral used to support these trading positions. However, CoinFlex stated that the data will be anonymised.
According to Lamb, this data will show users “how dangerous the platform is, how leveraged the users are, and whether any liquidations occur at a loss to the platform.”
(Adapted from LiveMint.com)