According to reports from China, Dong Zhao, who is a prominent Bitfinex shareholder, a Bitcoin OTC trader, a founder of the blockchain-focused investment firm DGroup, and a crypto influencer in China, has confirmed that Hong Kong-based cryptocurrency exchange Bitfinex has plans to issue its own exchange token, and to sell it either via a private placement or an initial exchange offering (IEO).
As you probably know, on Thursday (April 25), New York Attorney General (“NYAG”) Letitia James issued a press release to announce that her office had obtained a court order against iFinex (the operator of Bitfinex) and Tether Limited (the issuer of stablecoin Tether) “enjoining” the two firms “from further violations of New York law in connection with an ongoing activities that may have defrauded New York investors that trade in virtual or ‘crypto’ currency.”
The main allegations in this ex parte court order against the two respondents was that cash (and cash equivalents) backing the stablecoin had been used to help Bitfinex engage “in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds.” Apparently, Bitfinex, which had been having difficulties securing a stable traditional banking relationship, had used the services of Panamanian company Crypto Capital to process clients’ fiat deposts/withdrawals, and $850 million was the amount of funds sent to Crypto Capital, which later had claimed that the funds had been seized by officials of Portuguese, Polish, and American governments as part of an on-going investigation into the financial activities of that company.
On Friday (late evening UTC time), April 26, Zhao told crypto news outlet Coindesk that he “he remains ‘supportive’ of both Bitfinex and Tether”, that Giancarlo Devasini, Bitfinex’s CEO, had told him that “this is a temporary situation”, and that “the exchange ‘need[s] a few weeks and the funds will be unfrozen”. This is a screenshot of Zhao’s conversation with the Bitfinex CEO:
Then, on Sunday (April 28), Zhao wrote on the microblogging platform Weibo (the Chinese equivalent of Twitter) that Bitfinex should issue an exchange token (something similar to Binance’s BNB token) as a way of dealing with this cash crisis. Two days later, he confirmed on Weibo that Bitfinex was planning to issue such a token but that “the details are undecided.”
Here is what Dovey Wan, a founding partner of Primitive Ventures, wrote about this subject on Twitter on Tuesday (April 30):
BREAKING and WTF 🤯🤯🤯🤯
Bitfinex is planning on a exchange token sale + IEO… plan to raise $1B in $USDT….
This is really a WTF situation 🤦🏻♀️🤦🏻♀️
— Dovey Wan 🗝 🦖 (@DoveyWan) April 29, 2019
Folks are selling the allocation of its IEO in a few channels, i was super skeptical at first but later confirmed by of one of BFX equity share holders
If it’s a fraud then don’t be scammed if it’s not a fraud then WTF @bitfinex please comment and clarify
— Dovey Wan 🗝 🦖 (@DoveyWan) April 29, 2019
I just don’t see how this can be sustainable, it won’t make Tether fully-backed again unless they distribute profit/new fund raised back to Tether reserve. BFX has already securitized + tokenized its future cash flow for their last hack, this is another layer of leverage on top
— Dovey Wan 🗝 🦖 (@DoveyWan) April 29, 2019
There are a few inconsistencies from all the public info
1. If BFX is highly cash flow positive, why borrowed from Tether?
2. If the $850m can be easily crawled back, why IEO?
3. If BFX really dosent’t give a f of NYAG (not criminal charges yet) why bother doing all these
— Dovey Wan 🗝 🦖 (@DoveyWan) April 29, 2019
Finally, at 20:55 UTC on Wednesday (May 1), Coindesk reported that Zhao had said on China’s largest social media platform WeChat that Bitfinex may be holding a $1 billion token sale potentially as early as next week and that “individuals interested in participating should reach out to either him or to DFund, a group he founded.”
Coindesk’s report on Zhao’s WeChat post also says:
- “There will be a minimum buy-in of $1 million, and a total supply of 1 billion tokens, available for $1 each” (with investors already promising to put in $500 million)
- “Only qualified foreign investors will be allowed to invest” (and that “they must make a ‘soft’ commitment to the sale by Sunday”)
- “Once investors have been able to review the token’s white paper, they can choose to cancel their soft commitment or convert to a hard commitment, with a 10 percent deposit”
- ““The system works on a first-in, first-served basis” such that if “the whole [1 billion is] fully allocated,” there will be no need “to run the IEO to the retail channel” (i.e. “it will be like a private placement”)
- Bitfinex’s token will be a ‘hybrid’ of BNB and BFX (described by Coindesk as “the token Bitfinex issued to customers who lost money in a 2016 hack, which was convertible to equity and was fully redeemed the following year”
Featured Image Credit: Photo via Pixabay.com