Announced on Tuesday, June 28, in a blog post, CoinFlex is opting to utilize what it calls a "tokenization solution to resume withdrawals" to stave off impending doom. The cryptocurrency exchange is, like many in the industry, faced with rather dire circumstances following its freeze on withdrawals last week, turning toward the blockchain to find its inevitable solution.
The company is now issuing a so-called Recovery Value USD coin, or rvUSD, at a total value of $47 million at a 20% interest. As its name implies, the CoinFlex rvUSD will act as a pick-me-up in the wake of the firm's massive debt accrued when one investor's account hit "negative equity," according to CoinFlex CEO Mark Lamb. This incident led the firm to halt withdrawals, causing a frenzy in the market given recent occurrences with both Celsius and TerraUSD.
CoinFlex has yet to announce the name of the said investor but offered up some details as describing the customer as "a high-integrity person of significant means, experiencing temporary liquidity issues due to credit (and price) crunch in crypto markets (and non-crypto markets), with substantial shareholdings in several unicorn private companies and a large portfolio."
A clause within the investor's CoinFlex account disallows the firm from liquidating it, which would be the main course of action for CoinFlex. The clause specifically states that the customer would have to "pledge stringent personal guarantees around account equity and margin calls in exchange for not being liquidated."
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With rvUSD, CoinFlex aims to renew withdrawals by making back as much money as possible to cover the investor's account. For one, the 20% interest rate ensures the CoinFlex rvUSD is certainly competitive and enticing for many investors, but cryptocurrency itself still remains in a rather gloomy current state of affairs.
Not a mere 24 hours prior, among the largest crypto hedge funds on the block defaulted on a $670 million loan, with some in the industry (specifically FSInsight) calling 3AC a "Madoff-style Ponzi Scheme." Similar theories have been brought to the fold in regards to CoinFlex and its varied history. As to CoinFlex's new token, one Twitter user named Brian Murphy wrote in reply to Bloomberg, "Nothing sounds more Ponzi than a high "guaranteed" ROI."
CoinFlex must also still get back the money lost from the investor in some way beyond the scope of its rvUSD. On Monday, CoinFlex CEO Mark Lamb told Bloomberg that "at some point in the future," said by a customer will eventually repay the lost investments. He went on to explain that CoinFlex has various "alternative mechanisms" if rvUSD turns out to be a bust for its recouping stage.
"We are still targeting withdrawals for Thursday, June 30th 2022," the firm wrote in its blog post. "However, this will be subject to receiving funds pursuant to the rvUSD issuance. If the rvUSD token issuance is fully subscribed, CoinFlex will re-enable withdrawals and restore the platform to full functionality in an orderly manner."
Lamb also stated that going forward, better avenues for transparency will exist for the firm's business and ensure CoinFlex withdrawals don't get out of hand. He explained that an external audit firm would analyze every account's future position and make the information publicly available, anonymized, of course.
CoinFlex customers are rightfully angered by the move. Many are questioning how CoinFlex can offer its rvUSD at a 20% yield, in addition to why the investor remains unnamed. Much of the blame is being positioned on the part of the risk management arm of CoinFlex, with investors calling the strategy useless.
