Crypto investment platform CoinFLEX aims to address its liquidity crunch and reinvigorate user withdrawals by selling bad debt through a new $47 million token offering.
The new token is known as Recovery Value USD (rvUSD) and will be worth $1 each. It is designed to help CoinFLEX recover $47 million in losses incurred by an account that was allowed to reach negative equity without being liquidated. It will be issued from June 28 to July 1 and the company said it hopes to resume withdrawals by June 30.
While the identity of the person whose account went negative is still unknown, CoinFLEX CEO Mark Lamb insisted in a June 27 announcement that the individual “is a person of high integrity with significant means”. What we do know is that on June 23 Blog post, Lamb blamed the individual’s bad debt for stopping the withdrawals.
Hello everyone, we share our latest update on the plans for reactivating withdrawals on the platform https://t.co/34brwoDYuL
—CoinFLEX (@CoinFLEXdotcom) June 27, 2022
Under normal circumstances, the crypto lender liquidates accounts before they reach zero equity. However, Lamb explained that in this case, CoinFLEX opened a one-of-a-kind “non-liquidation recourse account” in which it agreed not to liquidate the account, and the borrower agreed to keep it filled with lots of equity.
Things did not go as planned as the account went negative, which would have caused a liquidity crisis within the company. Lamb added that this account was the only one on CoinFLEX with negative equity.
rvUSD will be issued to “sophisticated investors” non-residents of the United States with a minimum subscription of USD 100,000 per investor. Investments come with an annual percentage rate of 20% paid in rvUSD.
A sophisticated investor is one who has an annual income of at least $200,000, a total net worth of at least $1 million, and has completed the Know Your Customer (KYC) procedure on CoinFLEX.
In order to prevent this from happening again, Lamb has stated that it will no longer issue this type of account. His firm will also extend its transparency by making the notional USD value of each account’s futures positions public through an external audit firm.
– Bloomberg Technology (@technology) June 27, 2022
In a Bloomberg Technology interview with host Emily Chang on June 27, Lamb expressed her company’s belated need for more transparency. He believes his company should emulate the transparency that large decentralized finance (DeFi) companies have come to exemplify. He said, “We need to do at least as well, if not much better than DeFi when it comes to transparency.”
“It hurts privacy, but we think traders will find it appealing for the added comfort they get from knowing the risk and leverage implicit in the system.”
CoinFLEX is just the latest in a growing list of centralized financial institutions and crypto investment firms that have come under public criticism for potential insolvency. Most notable among this beleaguered group are Su Zhu and Kyle Davies-led Three Arrows Capital, Alex Mashinsky-led Celsius crypto lending platform, and Zac Prince-led crypto lender BlockFi.
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CoinFLEX’s native token, FLEX Coin (FLEX), has taken a beating in the past four days dropping 77% to $0.99 at the time of writing, according at CoinGecko.