With the plunge in cryptocurrency prices and the beginning of a new so-called “cryptocurrency winter,” many companies in the industry are facing a liquidity crisis.
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On Tuesday, cryptocurrency exchange CoinFlex issued a new token to raise funds to resume customer withdrawals after a client was unable to repay a huge debt.
CoinFlex said it will issue $ 47 million worth of digital coins and offer 20% interest. This is called the Recovery Value USD, or rvUSD.
It was after the company suspended the withdrawal of customers last week due to “extreme market conditions” and “uncertainty of trading partners.”
On Monday, CoinFlex published a blog post with more information about counterparties. In his post, CEO Mark Lamb states that long-standing customer accounts have become “negative equity.” Therefore, the company has stopped withdrawing.
CoinFlex said it would automatically liquidate an investor’s position under normal circumstances, but traders had a clause in their account that did not allow it. The terms required individuals to “promise strict personal guarantees regarding account fairness and margin claims in exchange for not being liquidated,” CoinFlex said.
The company refused to nominate an investor, but the individual was “a highly complete person with significant tools and temporary liquidity due to tight credit (and prices) in the crypto and non-crypt market). I have a sexual problem and I have a fair amount of shares. ” With some unicorn private companies and a large portfolio. “
CoinFlex hopes to raise enough funds to fill the book shortfalls left by investors and resume user withdrawals by issuing new rvUSD tokens. We are offering a 20% interest rate to those who are willing to buy rvUSD to seduce investors.
“We are in discussions with potential bulk buyers and believe that we are very interested in the terms presented,” Lamb said.
However, some of CoinFlex’s plans want to be repaid by investors. Of course, that may not happen. Lam told Bloomberg on Monday that investors believed they would repay the company “at some point in the future.”
He added that the company has “alternative mechanisms” if it can’t raise money from issuing rvUSD, but didn’t elaborate on what they would do.
CoinFlex said it hopes to resume withdrawals on June 30th. If the issuance of rvUSD tokens is fully subscribed, CoinFlex will re-enable withdrawals and restore the platform to full functionality, the company said.
Many users were angry with Ram. On the company’s official telegram channel, users asked why CoinFlex didn’t appoint an investor, criticized the company’s risk management strategy, and asked how the company would offer a 20% yield on new coins.
Ram 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 Over the past few weeks, we’ve wiped out billions of dollars from the digital coin market.
The new so-called “crypto winter” has revealed weaknesses in the business models of many companies that rely heavily on lending and highly leveraged trading strategies.
Celsius, a crypto lending platform that promises high yields to users who deposit cryptocurrencies, Withdrawal suspended earlier this month..Cryptographic hedge fund attracting attention on Monday Three Arrows Capital has taken out a loan by default Worth over $ 670 million from Voyager Digital.
CoinFlex lambs promised more transparency in their blog post on Monday. He said the value of futures positions on all accounts will be publicly available through an external auditing firm that certifies these positions every hour. The company also provides information on collateral to support these trading positions. However, CoinFlex states that the data will be anonymized.
Lam said the data provides users with insights into “whether clearing occurs due to platform risk, user leverage, and platform loss.”