Cryptocurrency exchange CoinFlex plans to raise funds by issuing a new token that will offer a 20% annual return, in an effort to resume withdrawals after a client failed to repay a $47 million debt.
The platform said it will start to issue $47 million of what it calls “Recovery Value USD” tokens on Tuesday. The resumption of withdrawals, targeted for June 30, will depend on the level of demand for the new tokens.
“We’ve spoken to a significant amount of private investors such that we think that at least half of the issuance is going to be subscribed for,” Mark Lamb, chief executive officer of CoinFlex, told Bloomberg News in New York on Monday.
The token sale is eligible only to non-US, sophisticated investors, according to the statement. Founded in 2019, CoinFlex is a smaller crypto exchange focusing on derivatives trading. The exchange’s investors include Roger Ver, one of the most vocal Bitcoin Cash advocates.
CoinFlex paused withdrawals last Thursday after an unnamed counterparty, a high-net-worth individual with “substantial shareholdings in several unicorn private companies and a large portfolio” experienced liquidity issues and failed to repay debt.
Lamb declined to name the counterparty, though he added CoinFlex believes this liability represents only a “small fraction” of the counterparty’s overall private company assets.
The pause comes amid liquidity problem and contagion throughout the industry. Major lenders Celcius Network and Babel Finance have frozen withdrawals, and Three Arrows Capital, a crypto hedge fund, is also facing liquidity troubles that rattled investors.
CoinFlex has said the counterparty at issue isn’t Three Arrows Capital or any lending firm. While it would typically liquidate any negative equity account, the user had a non-liquidation recourse account, according to CoinFlex. No other accounts are in negative equity, it added.
In addition, CoinFlex said it is also creating a new model for transparency around margins after the restoration of withdrawals. The values of every account’s future positions will be made publicly available via an external auditing firm, attested to every hour. They plan to release information on the collateral held.