$1 billion dollars. That’s how much Bitfinex, or ‘finex’ is looking to raise through it’s Initial Exchange Offering (IEO). This published white paper describes how the IEO is designed to cover the inaccessible $850 million tied in with former payment processor and shadowbank Crypto Capital.
New York State Attorney General (NYAG) Sues Bitfinex
News broke last week that the New York State Attorney General (NYAG) was suing Bitfinex and Tether (the cryptocurrency exchange and company behind the stablecoin) due to claims that both parties misled investors by failing to disclose that $850 million of Bitfinex’s capital was ‘inaccessible’ – and that Finex received a line of credit from Tether to continue its operations.
Most importantly, the consequence of this line of credit means that Tether tokens (backed 1:1 with the US Dollar) no longer have equal parity with their fiat deposits. In short – 1 Tether is ‘not worth’ 1 Dollar. The $850 million is reportedly frozen in multiple accounts controlled by Crypto Capital. According to the filing by the NYAG’s office, Crypto Capital informed Bitfinex and tether that their deposits were seized by authorities in Poland, Portugal and the U.S. Bitfinex disputes this supposed seizure.
The IEO to End All IEOs
Extracts from finex’s white paper reveal that the exchange plans to issue and sell 1 billion exchange tokens at 1 USDT each in order to raise the necessary funds to cover their accounting shortfall. These tokens (dubbed LEO) will be bought back at a market rate, every month, using a minimum of 27% of month profits, until 100 million tokens remain. The exchange ‘reserves the right’ to buy back the tokens within 18 months in the event that its funds, held by Crypto Capital, become accessible.
(Lack) of Market Reaction
The news of the exchange’s deposit shortfall was met with (surprising) mild market negativity. Moreover, the audacious move to raise the missing funds via the largest IEO fundraiser in history, hasn’t drawn widespread derision from commentators.
Both of these knee-jerk-less market reactions may be an indication of the continued maturation of the space – with speculators becoming more immune to perceived bad news cycles. Indeed, some analysts believe it demonstrates something even more positive – the beginning of positive market action and a new bull trend.