Coinflex Accused of Creating “New Ponzi to Save Old Ponzi”

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  • Coinflex has been savaged for its attempt to plug a $47 million hole in its accounts
  • The platform has been left high and dry by a major investor, and the company has turned to regular crypto users for help
  • An rvUSD coin has been proposed which pays out 20% interest and is the hook on which a Coinflex rescue attempt is being hung

Coinflex, the project behind an interest-paying stablecoin, has responded to its funding crisis by proposing a new token that will offer a 20% return in a bid to prevent a bank run when it re-opens withdrawals. Coinflex halted withdrawals last week citing “continued uncertainty involving a counterparty” but said at the time that it hoped to re-open them by Thursday. Founder and CEO Mark Lamb moved to quell customer ire yesterday by putting out a tweet thread that revealed Coinflex’s plans to create Recovery Value USD (rvUSD), a new token that it hopes will offset the continued issues with the client and plug a $47 million gap in its coffers.

rvUSD Passes Risk to the Wider Crypto Public

Lamb went on Bloomberg yesterday to explain the thinking behind the rvUSD, calling it “a way of using tokenisation” to solve its funding problem:

Lamb also put out a tweet thread which went into detail about the plans for Coinflex and rvUSD, with a two-page whitepaper formalising the proposal. In many ways rvUSD is like a fixed interest savings account, with investors promised a 20% interest rate on their investment, paid out daily in rvUSD tokens. These tokens can be cashed out for USDC tokens “from time to time” according to the whitepaper, which will hardly fill investors with cheer.

47 million rvUSD tokens are being issued, with each one costing 1 USDC ($1), with that figure being the presumed amount needed to cover a potential bank run on Coinflex when it re-opens withdrawals. The minimum subscription is 100,000 USDC which shows the level that Coinflex needs to achieve in order to avoid defaulting.

For obvious reasons Coinflex has not revealed the name of the counterparty with which it is having issues, but it went out of its way to reassure would be rvUSD investors that the investor in question would be coming up with the cash any day now:

The Individual is a high integrity person of significant means, experiencing temporary liquidity issues due to a credit (and price) crunch in crypto markets (and even noncrypto markets) who has significant shareholdings in several unicorn private companies and a large portfolio.

As well as a 20% interest rate, rvUSD buyers can also look forward to their portion of a 2.5 million FLEX token payout which will be paid out “over an 8 month period following the recovery or partial recovery.” Wow, the gifts keep on coming.

Coinflex Proposal Doesn’t Cut the Mustard on Twitter

Of course, the plan went down like a lead balloon on crypto Twitter, with many warning interested investors away from the product being offered:

Lamb told Bloomberg that he had faith that the individual causing all the problems was “going to get us these funds at some point in the future” and claimed that the solution being offered was a good one because “more people get to participate in the solution”. He also added that more than half the amount needed has been made in “soft commitments”. Yikes.

Coinflex has not wedded itself to its June 30th deadline, but if that date passes and the team hasn’t raised the $47 million it needs (which, on the face of it, is looking unlikely) then it will be under huge pressure and may have to come up with additional strategies or start thinking about protecting itself in the legal sense prior to a platform closure.

Naturally this is the last thing that anyone wants, but getting hold of $47 million in the current market and with this level of background information is already looking like an uphill struggle.