Crypto exchange CoinFlex will resume withdrawals after issuing a new token — dubbed Recovery Value USD (rvUSD) — which will offer 20% annual returns to users, the exchange announced in a whitepaper on June 27.
CoinFlex intends to issue $47 million worth of rvUSD starting June 28 to help deal with liquidity issues and expects withdrawals to resume by June 30, depending on the demand for the new token.
According to the announcement, only non-U.S. sophisticated investors can participate in the token sale.
CoinFlex CEO, Mark Lamb, told Bloomberg News:
We’ve spoken to a significant number of private investors such that we think that at least half of the issuance is going to be subscribed for.
When asked about the possibility of a bank run, Lamb said this is very unlikely as customers can withdraw funds immediately after the fundraising via token issuance is complete.
The decision comes a few days after CoinFlex became the latest crypto firm to halt withdrawals. It stopped withdrawals after a high net worth customer failed to repay a $47 million debt.
CoinFlex exchange focused on derivatives trading and paused withdrawals last Thursday, claiming that an individual with “substantial shareholdings in several unicorn private companies and a large portfolio” faced liquidity issues and couldn’t repay their debt.
The CEO did not give the individual’s name but said that CoinFlex believes this liability is only a small portion of the counterparty assets.
According to the company, the counterparty is not a lending firm. CoinFlex said:
In normal circumstances, we would auto-liquidate a position that runs low on equity at prices that are prior to the zero-equity price.
However, this particular user has a non-liquidation option on their account. Furthermore, it added that no other account has negative equity.
Crypto firms are battling liquidity issues
Liquidity issues in the crypto industry are gradually becoming a contagion problem with several firms and exchanges pausing withdrawals.
Three Arrows Capital, Babel Finance, and Celsius Network face similar problems.
Meanwhile, CoinFlex added that it would be more transparent after restoring withdrawals. The new transparency model will include making every account’s futures positions publicly available, releasing collateral information held, and working with an external auditing firm.