CoinFLEX Tokenizes $47M Client Debt, Offers 20% APR on It

Crypto derivatives exchange and yield platform CoinFLEX aims to raise $47 million by tokenizing the debt of a client, in a bid to fund other customers’ withdrawals. A new token, dubbed Recovery Value USD (rvUSD), will offer a 20% annual return for holders as well as other perks. The platform had to halt withdrawals for all users when the massive client’s account went into negative equity.

CoinFLEX Halts Withdrawals after Whale’s Account Went into Negative Equity

Last week, CoinFLEX halted withdrawals citing extreme market conditions as well as “continued uncertainty involving a counterparty,” the crypto platform said in a blog post. At the time, the company ensured users that the counterparty was not the troubled crypto hedge 3AC or any lending firm, claiming that the situation was repairable. 

While the company has not disclosed the counterparty, it revealed that the individual is a long-time customer of the platform whose account went into negative equity during the recent market volatility. “In normal circumstances, we would auto-liquidate a position that runs low on equity at prices that are prior to the zero-equity price,” CoinFLEX said.

However, the whale, in this case, had a “nonliquidation recourse account,” meaning that they would not be liquidated in exchange for personally guaranteeing their account equity. The crypto exchange added that the client is a “high integrity” individual that has experienced temporary liquidity issues due to the recent market crash. 

CoinFLEX to Tokenize $47M Whale Debt

In a bid to raise funds and resume withdrawals, CoinFLEX plans to tokenize the client’s debt and issue a token called Recovery Value USD (“rvUSD”). The exchange will issue 47 million rvUSD tokens at a price of 1 USDC per coin. If fully sold, the campaign can raise $47 million. 

Potential buyers will be offered a 20% Annual Percentage Rate (APR) rate in addition to other perks, including 2.5 million FLEX coins ($3.15 million) distributed pro-rata across all holders. CoinFLEX CEO Mark Lamb has claimed that there is “significant interest” in the tokens. 

In case the client fully repays the debt, the funds will be converted to USDC and distributed to rvUSD holders. However, if the individual fails to repay their debt within a period of 15 months, the tokens would be converted into USDC and would be paid from CoinFLEX’s balance sheet. 

“Proceeds from the repayment of the debt/ recovery of assets from the Individual will be converted into USDC. rvUSD holders will be able to convert their tokens into USDC on a pro-rata basis based on the amount of these repayments/recoveries from time to time.”

Lamb stated that the platform still aims to restore withdrawals by Thursday, June 30. “However, this will be subject to receiving funds pursuant to the rvUSD issuance,” he said, claiming that if the rvUSD token issuance is fully subscribed, CoinFLEX will resume withdrawals and restore the platform to full functionality.

Notably, the platform aims to prevent such incidents from happening in the future by using an external auditing firm to boost transparency. As part of the new model, the platform would publicly reveal the USD value of every account’s futures positions, as well as the collateral backing these positions. 

The platform’s native token FLEX has been hit hard by recent events. The coin is currently trading at $1.26, down by more than 14% over the past 24 hours. Meanwhile, the broader crypto market is mostly flat over the past day, with Bitcoin and Ethereum trading sideways around key $21,000 and $1,200 levels.