CoinFLEX, a crypto exchange which we’ve added to our tracker of compromised centralized exchanges for freezing user withdrawals, has pointed the blame for their liquidity problems to a wealthy individual who owes the exchange $47M USDC. The story has developed a lot of drama in the past week as CoinFLEX has revealed that the individual is the widely hated and sometimes loved Roger Ver, former CEO of Bitcoin.com.
Ver was an early Bitcoin advocate and one of the critical actors in the blocksize wars. The blocksize wars was a much heated fissure in the early Bitcoin community where one side wanted to keep the same size of blocks as Satoshi had outlined and the other wanted a larger blocksize–though under the surface, this dispute was really over who would control the underlying Bitcoin protocol. Eventually this conflict resulted in Ver creating BitcoinCash, a fork off of Bitcoin that had a larger blocksize. It has not done well.
In response to CoinFLEX’s public statement, Ver denied that he owed CoinFLEX anything, and claimed the company actually owed him money… which CoinFLEX CEO David Lamb says is a lie. Yeah, it’s one of those Twitter arguments.
For what it’s worth, anonymous Twitter user FatMan, who gained fame in crypto Twitter for accurately surfacing many leaks about UST/LUNA before they were publicly made available, has said that insiders familiar with the matters have confirmed to him Roger Ver is the individual who owes CoinFLEX this money.
What is the real story here? It’s entertaining that the borrower ended up being Roger Ver, but this is really a story about CoinFLEX’s poor risk management practices–something we’ve seen everywhere. And CoinFLEX hasn’t taken this as a good chance to reflect and improve their risk management practices, they’re doubling down.
CoinFLEX’s solution to reallowing withdrawals was to tokenize the outstanding debt and offer a 20% APY on top of it. They’re issuing 47M of rvUSD for accredited investors ($200k/year or >$1m total assets not including your home), with a minimum buying size of 100,000 rvUSD. The terms for the new debt reveals a lot about the conditions that let this happen.
In this case, the Individual had a nonliquidation recourse account, a condition that means they will not be liquidated in exchange for personally guaranteeing their account equity in writing. [...] Notably, the Individual had consistently met every margin call before this incident. 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.
Ver has been a long term, high quality customer to coinFLEX, who was given nonliquidation carve outs. The new debt being issued is subject to being repaid in USDC or USDC and FLEX coins in the case where CoinFLEX is unable to pay back in USDC–which one would think could result in FLEX coins being worthless.