CoinFLEX tokenized bad debts and more yeilds as their recovery plan
Crypto investment platform CoinFLEX aims to rectify its liquidity shortage and restart user withdrawals by selling off bad debt through a new $47 million token offering. They issued a no-liquidation account to an unnamed whale on the condition that the account would never go negative, but that plan has backfired.
The new token is named Recovery Value USD (rvUSD) and will be worth $1 each. It is intended to help CoinFLEX recover $47 million in losses experienced by an account that was allowed to reach negative equity without being liquidated. It will be dispensed from June 28 through July 1, and the firm specified that it hopes to resume withdrawals by June 30.
Although the individuality of the individual whose account went negative is still unknown, CoinFLEX CEO Mark Lamb announced that the individual “is a high-integrity person of significant means.” In a June 23 blog post, Lamb blamed the individual’s bad debt for halting withdrawals.
Generally, the crypto lender liquidates accounts before they reach zero equity. Lamb explained that in this case, CoinFLEX opened a one-of-a-kind “non-liquidation recourse account” wherein it agreed to not liquidate the account, and the borrower agreed to keep it filled with plenty of equity.
As the account went negative, things did not go according to plan, rather allegedly causing a liquidity crunch at the firm. Lamb further said that this account was the only one on CoinFLEX with negative equity.
rvUSD will be issued to the non-US resident “Sophisticated Investors” at a minimum subscription of $100,000 per investor. Investments come with a 20% annual percentage rate paid in rvUSD.
A Sophisticated Investor is one who has performed the Know Your Customer (KYC) procedure on CoinFLEX with an annual income of at least $200,000, and a total net worth of at least $1 million.
To prevent this from happening again, Lamb specified that he would not issue that type of account anymore. His firm will also increase its transparency by making public the notional USD value of every account’s future position through an external auditing firm.
In an interview on Bloomberg Technology on June 27 with host Emily Chang, Lamb expressed his company’s belated need for more transparency. He feels that his firm should compete with the transparency that major DeFi firms have come to demonstrate. He said, “We need to do at least as good as, if not, much better than DeFi with respect to transparency.”
“It has a damage to privacy, but we think that traders are going to find that worthwhile for the additional comfort that they get from knowing the risk and the leverage implicit in the system.”
CoinFLEX is just the newest in a growing list of centralized financial institutions and investment firms in crypto that have faced public criticism for a potential liquidation.
According to CoinGeckoCoinFLEX’s native token, FLEX Coin (FLEX), has taken a beating over the past four days by dropping 77% to $0.99.
