Bitfinex Is Planning on an Exchange Token Sale, Confirmed Shareholder Zhao Dong
Zhao Dong, a shareholder of the embattled crypto exchange Bitfinex, confirmed that the exchange is planning to issue its native exchange token but made no comment on the rumored plan of “raising $1 billion”.
“Bitfinex does have a plan to issue its exchange token, but the details have not yet been finalized. If someone tells you they have access to Bitfinex’s token sale, beware that it is very likely a scam,” said Zhao in his latest weibo (tweet equivalent in China) on April 30.
The crypto community is in an uproar after the New York State’s Attorney General’s office accused Bitfinex of secretly using Tether’s USD reserves which should back the stablecoin to cover up an $850 million fund shortfall in its finances. Though the exchange has denied the charges, saying the funds have been “seized and safeguarded” by Polish, Portuguese, U.S. and UK authorities which needs “a few weeks to be unfrozen”.
As a shareholder of the exchange, as well as a bitcoin influencer in China, Zhao has been actively reassuring the crypto community that the exchange is solvent with a bunch of weibo posts, for which some Chinese traders complaint “Zhao is so panic that it seems Bitfinex is really in big trouble this time”.
Among these posts, his latest ones have triggered heated discussion. On April 29, Zhao posted a weibo asking crypto traders “what if Bitfinex issue its own exchange token backed by trading fees?” as a proposal to help Bitfinex out of the current situation.
“If Bitfinex takes this opportunity to issue its native exchange token to tackle the crisis, how many people would choose to believe and support Bitfinex?
My suggestion is to issue its native token amounting to the frozen $850 million, then Bitfinex will buy back and lock corresponding USDT and distribute the exchange’s trading fees to holders of its token.” He later added that “Bitfinex has generated $400 million in profit in 2018 with $12 million spent” and said he’d like to get it done if traders support it.
It further worried many Chinese investors that it seemed to hint that the $850 million might not be unfrozen in short time and the exchange now wanted to raise money via IEO to cover the $850 million.
Crypto entrepreneur Dovey Wan took the topic to Twitter this morning, pointing out that it would be a deeply flawed strategy,
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
“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.”
On August 2, 2016, nearly 120,000 BTC (worth about $75 million at the time) were hacked due to security flaws in Bitfinex’s website. To address the crisis, Bitfinex issued bond-like token BFX back then.
A self-claimed CFA twitter user argued that it is right thing for companies with free cash flow to raise money. However, in the Bitfinex case, obviously its fundraising comes at a sensitive timing. As of press time, Bitfinex has made no comment on the controversial IEO plan. If it is confirmed by the exchange, will the IEO get it off the hook, or further roil the crypto community?
While the Asian market’s affection for Tether/USDT remains largely unaffected despite the lawsuit, which may inspire the exchange’s IEO movement. According to Zhao, some big whale has already reserved $300m of the allocations in USDT.