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By selling off lousy debt through a new $47 million token sale, the crypto investing platform CoinFLEX seeks to address its liquidity deficit and resume customer withdrawals.
The new coin will be called Recovery Value USD (rvUSD) and have a value of $1 apiece. It is intended to assist CoinFLEX in recovering $47 million in damages from an account permitted to approach negative equity without being liquidated. It will be sent between Tuesday and July 1, and the company has announced that it wants to begin withdrawals by June 30.
While the name of the user whose account went negative remains unknown, CoinFLEX CEO Mark Lamb claimed in a Monday statement that the customer "is a person of great integrity and big wealth." In a blog post published on Thursday, Lamb attributed the suspension in withdrawals to the individual's bad debt.
Typically, the cryptocurrency lender liquidates accounts before they reach zero equity. Lamb added, however, that in this situation, CoinFLEX constructed a one-of-a-kind “non-liquidation recourse account” in which it pledged not to liquidate the account, and the borrower agreed to maintain it well-funded with equity.
The account went negative, purportedly resulting in a financial crisis for the company. Lamb stated that this account was the only one with negative equity on CoinFLEX.
rvUSD will be offered to “Sophisticated Investors” who are not United States residents, with a minimum subscription of $100,000 per investment. The yearly return on investments is 20%, paid in rvUSD.
A Sophisticated Investor has a minimum yearly income of $200,000, a net worth of $1,000,000, and has completed the Know Your Customer (KYC) procedure on CoinFLEX.
To avoid this from happening again, Lamb announced that he would no longer issue accounts of this sort. His company would also increase its openness by disclosing the notional United States dollar value of each account’s futures contracts via an external auditing agency.
In an interview with Emily Chang of Bloomberg Technology, Lamb highlighted his company’s delay and need for greater openness. He believes that his company ought to adopt the transparency that extensive decentralized finance (DeFi) companies have come to embody. He stated, “We must perform at least as well as DeFi, if not much better, in terms of transparency:”
“It has a damage to privacy, but we think that traders will find that worthwhile for the additional comfort they get from knowing the risk and the leverage implicit in the system.”
CoinFLEX is the latest in a growing line of crypto-related controlled financial institutions and investment enterprises that have been criticized for probable insolvency. Three Arrows Capital, managed by Su Zhu and Kyle Davies, the Celsius crypto lending platform, led by Alex Mashinsky, and BlockFi, led by Zac Prince, stand out among this embattled bunch.
According to CoinGecko, the native token of CoinFLEX, FLEX Coin (FLEX), has suffered a 77 percent battering over the previous four days, falling to $0.99 at the time of writing.