Mark Lamb’s decentralized crypto exchange CoinFLEX is proposing to raise a total of $47 million via the tokenization of the firm’s bad debt as part of an ambitious recovery plan that would aim to resume withdrawals before the month ends.
In a whitepaper released this morning, the exchange presented a new token called rvUSD (Recovery Value USD) that will be used to raise capital to shore up the exchange’s finances after one of its top customers defaulted on a large loan.
According to CoinFLEX, this “individual is a long-time customer of the CoinFLEX platform and during the recent market volatility his account went into negative equity”.
The platform also clarified that the person had a “non-liquidation recourse” and referred to this as standard practice when dealing with “institutional-sized” traders.
The price of FLEX – the ecosystem’s native token – is declining nearly 29% in the past 24 hours following the news at $1.29. Thus far in 2022, the token is accumulating a 78.1% loss.
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How Will rvUSD Tokens Work?
These rvUSD tokens will be available to be scooped by non-US investors who meet certain financial criteria until 1 July with the minimum subscription currently standing at $100,000.
Holders of rvUSD will be entitled to receive a 20% annual percentage rate (APR) paid daily in rvUSD. These tokens will be collateralized by the debt of the individual holder referred to above. The firm expects to recover the funds within a 15-month peroiod. Otherwise, the rvUSD will be converted into either USDC or via a combination of USDC and FLEX coins coming out of the exchange’s treasury.
Back in 24 June, CoinFLEX was forced to pause all withdrawals from its platform. The firm cited extreme market conditions and uncertainty involving a counterparty as the reason behind the halt. However, it did not disclose who the counterparty is.
During an interview with Bloomberg Technology, the Chief Executive Officer of CoinFLEX, Mark Lamb, stated that the company plans to make available certain data related to its exposure to futures positions and the collateral that backs those kinds of positions for the sake of a more transparent DeFi ecosystem.
Meanwhile, in regards to the placement of these rvUSD tokens, Lamb stated that the developing team has been speaking with large buyers and that they believe there is “significant interest in the terms presented”.
In the absence of clear regulations that establish some ground rules for firms within the crypto and DeFi space, exchanges have had ample discretion to operate as they see fit. for example, CoinFLEX has not published a report that discloses its current financial situation.
Issues at CoinFLEX and Other Brokers Underpin the Risks of DeFi
Investors have been drawn to protocols such as CoinFLEX due to the highly attractive payouts offered by these platforms. These above-average rates have led industry professionals to consider these initiatives a Ponzi scheme in which new funds are used to pay existing investors.
Only a couple of months ago, another similar venture called the Anchor Protocol – a Terra-based crypto savings and lending platform – imploded after the ecosystem’s native tokens declined sharply.
This resulted in billions of dollars lost by investors and sent shockwaves across the entire crypto industry as Anchor was one of the most attractive platforms back then.
The latest decline in the valuation of digital assets has also led to issues within many decentralized protocols that have apparently failed to adopt appropriate risk management procedures to attract sizable amounts of capital from both individual and institutional investors.
One of these exchanges is Voyager Digital, a US-based platform that had to be bailed out by Sam Bankman-Fried after one of its top customers – the Asian crypto hedge fund Three Arrows Capital (3AC) – defaulted on a large debt.
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