CoinFlex flexUSD Stablecoin Depegs

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CoinFlex

CoinFlex is the first decentralized repo markets. The repo market connects lenders to borrowers. Lenders can participate through holding a new stablecoin, called flexUSD. Borrowers would take out loans on the CoinFlex platform. flexUSD was redeemable 1:1 for USDC and earned interest every 8 hours automatically.

Normally, borrowers will have collateral for their loan, which must exceed the loan value. If market prices change, the borrower will have to supply additional capital to avoid having their account liquidated, where the collateral would be sold to repay the loan. CoinFlex chose to give one creditor (Roger Ver) a special arrangement whereby he could have additional time to make payments without facing liquidation in his account.

Unfortunately, the market price of the BCH backing Roger's loan fell dramatically, and due to the arrangement he was not liquidated. The price of BCH remained low and Roger has not agreed to pay back the shortfall. FlexCoin was forced to disable withdrawals and redemptions of the flexUSD for USDC. This caused the price of the token to plummet and lose it's $1 peg.

An arrangement was reached with creditors (holders of flexUSD) where they would receive equity in the FlexCoin platform, and repayments of the shortfall would be made from operating profits over time. This was passed through a decentralized vote with over 98% support. It is unknown how long the recovery will take and if it will be successful.

About CoinFlex

Infographic:

Podcast About flexUSD:

flexUSD Website:

"CoinFlex was founded in 2019 as a platform for physically delivered futures, before pivoting its focus to build a repo market for crypto." "CoinFLEX is a centralized derivatives exchange based in the Seychelles with a large click farm, which expanded the notional trading volume to 24 times the actual volume by means of Repo." "CoinFLEX is the first crypto exchange to create a peer-to-peer repo (borrowing and lending) market, connecting dollar lenders (repo buyers) with crypto-collateralized borrowers (repo sellers). Repo sellers receive USDC in exchange for their coins, and retain their crypto exposure via the deliverable long perpetual futures leg. Repo market participants include basis traders (arbitraging or speculating on the price difference between a perpetual future and spot), lenders, borrowers, and cross-exchange arbitrageurs."

"What is flexUSD? flexUSD is the world's first interest-earning stablecoin. flexUSD is fully collateralized, and pegged 1:1 with USDC." "flexUSD is the stablecoin for everyone - new crypto investors, hodlers, and active traders. With flexUSD, earning passive income in crypto can't get any easier. Just mint, hold, and earn crypto."

"flexUSD pays holders compound interest, on-chain, every 8 hours. This means, regardless of whether flexUSD is sitting in your cold storage, or hot wallet, all you need to do is hold flexUSD to earn interest." "flexUSD earns interest from borrowers, in our borrow and lend market. Using CoinFlex as an intermediatry, flexUSD holders mint flexUSD by lending out their USDC as collateral. Borrowers then borrow this USDC and use their crypto-assets as collateral. Borrowers pay interest to borrow the USDC, and flexUSD holders receive this interest payment in the form of flexUSD for facilitating the trade."

"flexUSD is mintable in one click, and freely redeemable 3 times a day. You can slso instantly redeem flexUSD at any time for a small fee, equal to the sum of the previous 2 interest payments." "You can even earn extra yield on flexUSD by taking it off-platform and deploying it into DeFi. That's what we call earning yield on yield."

"In theory, a stablecoin is pegged 1:1 to a reserve asset such as the US Dollar and therefore backed by one US Dollar’s worth of stable and liquid collateral assets. But in the spirit of crypto, many centralized issuers and decentralized stablecoin protocols have tested the boundaries of said theory, in the process of experimenting with different forms of so-called stablecoins."

"Stablecoins were born from utility – the need for a reliable and low-cost instrument used as a medium of exchange for global, peer-to-peer trade. First-generation stablecoins such as USDT (Tether) and USDC have largely filled this role. But along the way, we have seen several creative spins on stablecoin utility – extending beyond payments to trading and earning yield."

"UST’s downfall does not mean that stablecoins should not exist for the purpose of earning yield. In fact, second-generation stablecoins are expected to maintain stability while providing additional value, such as earning interest. In light of this reality, the question remains: how does a stablecoin achieve greater adoption without utilizing unsustainable growth mechanisms? CoinFLEX has designed the flexUSD stablecoin with this in mind, by capitalizing on the growth of crypto derivatives."

"Understanding that many of these crypto activities are challenging to manage manually, CoinFLEX created flexUSD to tokenize these market opportunities. flexUSD takes advantage of the large demand for institutional levels of leverage and scarcity of dollars in the crypto markets, by earning funding rates from traders on the CoinFLEX exchange. flexUSD pays this interest to holders on-chain every 8 hours. It’s important to note that because flexUSD sources this yield directly from the CoinFLEX futures markets rather than third-party intermediaries, the stablecoin earns transparent and sustainable yields for holders."

"flexUSD is backed by USDC and coin assets in CoinFLEX’s repo markets. As a repo trade involves a coin position and an opposing futures position, flexUSD’s balance sheet is always fully hedged and indifferent to the underlying crypto market price movements."

"flexUSD’s collateral reserves are hoping to be verified and publicly attested to by a leading US auditing firm daily, every 8 hours. Holders have full transparency on how flexUSD is generating yield: on CoinFLEX, an orderbook-based publicly viewable marketplace that any qualified customer can view and trade. With other yield products, you typically have to take the borrower’s word for what the funds are being used for and have zero visibility as to what is actually being bought and invested in with your funds."

"Normally, when the net value of an account falls below the maintenance margin during contract trading, the exchange would simply liquidate the position. However, Roger Ver, as a high net worth client, signed an agreement with CoinFLEX, using his personal creditworthiness as a guarantee that his account would not be liquidated immediately if it fell below the maintenance margin, but rather that he would be given sufficient time to make a margin call." Roger Ver "had a long track record of previously topping up margin and meeting margin requirements in accordance with this agreement. We have been speaking to him on calls frequently about this situation with the aim of resolving it. We still would like to resolve it."

"In flexUSD’s history [prior to June 2022], CoinFLEX [was] able to successfully process $1 worth of the underlying asset (USDC) for every flexUSD redemption." On May 14th, Roger Ver tweeted, “Interest paying FlexUSD by CoinFLEX is on its way to being the default stable coin for the whole SmartBCH ecosystem if USDT & USDC don’t move quickly.”

"The story starts with CoinFLEX announcing to their partners that they “opened a special account for Roger Ver.” The account’s characteristics guaranteed that Roger Ver “would not be liquidated immediately if it fell below the maintenance margin, but rather that he would be given sufficient time to make a margin call.” Nothing special here, the man is a high-net-worth individual, deals like this are a dime a dozen in high finance. "

"According to a source acquired by Wu Blockchain, CoinFLEX had reportedly made an agreement with Roger Ver before the market collapsed, allowing the high-net-worth client to use his “personal creditworthiness” as a guarantee that his account would not be immediately liquidated even though it had fallen below the maintenance margin. Instead, Ver would have more time to meet the relevant margin requirements."

This is a global/international case not involving a specific country.

The background of the exchange platform, service, or individuals involved, as it would have been seen or understood at the time of the events.

Include:

• Known history of when and how the service was started.
• What problems does the company or service claim to solve?
• What marketing materials were used by the firm or business?
• Audits performed, and excerpts that may have been included.
• Business registration documents shown (fake or legitimate).
• How were people recruited to participate?
• Public warnings and announcements prior to the event.

Don't Include:

• Any wording which directly states or implies that the business is/was illegitimate, or that a vulnerability existed.
• Anything that wasn't reasonably knowable at the time of the event.

There could be more than one section here. If the same platform is involved with multiple incidents, then it can be linked to a main article page.

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

"Roger Ver opened a net long position on CoinFLEX with a margin of BCH, which was revealed to have been initially pledged at around $400. Then, the market price fell down, leaving the net worth of the account below the maintenance margin. By the time the exchange faced a liquidity crisis and could not withdraw its money, and other users became aware of the incident, the price of BCH had fallen to $120." "Ver’s position was far below the maintenance margin." "The trade involved a $47M loss from Ver."

"The beleaguered exchange did not liquidate Roger Ver’s position in time, noted Wu – an indicator of its poor risk management that contributed to the fallout of its whole ecosystem."

Key Event Timeline - CoinFlex flexUSD Stablecoin Depegs

Date	Event	Description
November 8th, 2021 11:10:00 AM MDT	FlexUSD Brief Depegging	There is a brief situation where the FlexUSD price drops and remains at $0.98 USD for a day before recovering.
March 17th, 2022 1:17:23 PM MDT	FlexUSD Price Spike	FlexUSD experiences it's largest ever price spike, rising all the way up to a value of $1.175 USD before collapsing down to a period or increased volatility.
March 23rd, 2022 10:35:00 AM MDT	Price Volatility Period	The FlexUSD price experiences a high amount of volatility, reaching a peak of $1.006 USD, and a low of $0.994 USD.
April 3rd, 2022 2:35:00 AM MDT	FlexUSD Brief Depegging	There is a brief situation where the FlexUSD price drops and remains at $0.98 USD for a few hours before recovering.
April 29th, 2022 12:16:47 AM MDT	FlexUSD Infographic Published	A FlexUSD infographic is published to YouTube which explains what the stablecoin is.
May 14th, 2022 8:17:00 AM MDT	Roger Ver Promotional Tweet	Roger Ver posts a tweet promoting flexUSD.
June 2nd, 2022 7:00:00 AM MDT	The Block Article	After the Terra Luna collapse, a sponsored article is published by The Block which explains what FlexUSD is and how it sets a new "gold standard".
June 26th, 2022 4:00:00 AM MDT	FlexUSD Loses Peg	The FlexUSD price collapses from $1 USD to $0.893 USD.
June 26th, 2022 7:05:00 PM MDT	FlexUSD Peg Restored	The peg is restored as the price climbs back from $0.984 USD to $1 USD.
June 26th, 2022 7:40:00 PM MDT	FlexUSD Price Peak	The price peaks at a price of $1.011 USD.
June 26th, 2022 8:00:00 PM MDT	FlexUSD Loses Peg	The FlexUSD price falls from $1.001 USD to $0.997 USD.
June 26th, 2022 8:25:00 PM MDT	FlexUSD Starts Collapsing	The FlexUSD price falls from $0.997 USD to $0.928 USD.
June 27th, 2022 3:50:00 AM MDT	FlexUSD Price Above Peg	The FlexUSD price restores and shoots past the peg to $1.062 USD before falling back to $1 USD and subsequently collapsing back down to .
June 27th, 2022 9:10:00 AM	FlexUSD Spikes Above Peg	The FlexUSD price restores and shoots past the peg to $1.073 USD before collapsing back down to $0.959 USD.
June 27th, 2022 6:55:00 PM	FlexUSD Peak	The FlexUSD price peaks at $1.016 USD before starting a gradual descent.
June 27th, 2022 7:15:00 PM	FlexUSD Loses Peg Again	The FlexUSD dips gradually below the peak to $0.995 USD.
June 27th, 2022 7:55:00 PM	FlexUSD Starts Collapsing	The gradual price dropping starts to accelerate rapidly, with a drop from $0.917 USD down to $0.834 USD.
June 27th, 2022 8:35:00 PM	FlexUSD Dips To 70 Cents	The FlexUSD price dips down to $0.703 USD before starting a gradual recovery.
June 28th, 2022 10:34:00 AM MDT	Roger Ver Denies Debt	Roger Ver tweets to deny that he defaulted on any debt. "Recently some rumors have been spreading that I have defaulted on a debt to a counter-party. These rumors are false. Not only do I not have a debt to this counter-party, but this counter- party owes me a substantial sum of money, and I am currently seeking the return of my funds."
June 28th, 2022 3:45:00 AM MDT	FlexUSD Peg Restored	The peg is restored as the price climbs back from $0.826 USD to $1 USD. This would be the final time that FlexUSD achieved a value near $1 USD.
June 28th, 2022 11:11:00 AM MDT	Roger Ver Tweet By Mark David Lamb	Mark David Lamb tweets about Roger Ver owing funds to the platform. "Roger Ver owes CoinFLEX $47 Million USDC. We have a written contract with him obligating him to personally guarantee any negative equity on his CoinFLEX account and top up margin regularly. He has been in default of this agreement and we have served a notice of default."
June 28th, 2022 12:49:22 PM MDT	Bloomberg Article Published	Bloomberg publishes an article on the dispute. TBD fill in more details.
June 28th, 2022 5:38:54 PM MDT	CryptoPotato Article Coverage	The incident is covered widely in a CryptoPotato article. "In the same statement, CoinFLEX indicated that the cause of these problems was a single individual facing temporary liquidity issues due to the recent crypto market downturn, assuring that none of the other accounts operating on CoinFLEX have negative equity."
June 29th, 2022 1:55:00 PM MDT	FlexUSD Price Crashes	The FlexUSD price collapses from $0.999 USD to $0.413 USD.
July 11th, 2022 4:18:40 AM MDT	CoinFlex Taking Legal Action	According to a CryptoPotato article published at this time, CoinFlex is not starting to take legal actions to recover the debt from Roger Ver. The cofounders of CoinFlex apparenlty announce arbitration at Hong Kong International Arbitration Centre (HKIAC).
July 13th, 2022 4:26:00 AM MDT	Honourable Mention	Twitter user Proof of No Work mentioned this case along with other failed stablecoin projects in his Tweet.
July 25th, 2022 6:58:21 AM MDT	Wu Blockchain Article Published	Wu Blockchain publishes an article on collapse. TBD more details.
July 25th, 2022 4:18:45 PM MDT	NewsBTC Article Published	NewsBTC publishes an article on the collapse. TBD more details.
July 26th, 2022 5:11:11 AM MDT	CryptoPotato Article Including Roger Ver	CryptoPotato publishes an article on the collapse, mentioning Roger Ver as a key part of the reason for the collapse.
August 10th, 2022 3:08:04 AM MDT	Restructuring in Seychelles	CoinFlex applies for restructuring in Seychelles, as reported by The Crypto Times. “We look forward to welcoming a new group of shareholders to CoinFLEX and are glad to be in a jurisdiction where we can quickly resolve this situation and return maximum value to depositors,” CoinFLEX CEO Mark Lamb told Bloomberg.
August 12th, 2022 8:38:52 AM MDT	CoinFlex Next Steps Published	CoinFlex publishes an article of next steps on their website. TBD compare this. Why was it removed?
August 12th, 2022 11:05:00 AM MDT	Mark David Lamb Tweet	Mark David Lamb tweets to notify that they have started pursuing Roger Ver for the debt.
September 21st, 2022	CoinFlex Restructuring Proposal And Next Steps	CoinFlex publishes a restructuring proposal and next steps article to their website blog. TBD more details.
September 21st, 2022 7:53:00 PM MDT	Bloomberg Article on Restructuring	Bloomberg provides mainstream coverage of the CoinFlex restructuring plan in a published article. TBD more details.
September 22nd, 2022	CoinFlex First Governance Vote	A CoinFlex blog post is made about the CoinFlex voting process which is coming online.
September 24th, 2022 7:56:00 PM MDT	CoinFlex Governance Vote Open	The CoinFlex governance vote opens on Snapshot to allow users to vote for the Scheme of Arrangements presented by CoinFlex. An official term sheet is also referenced.
September 25th, 2022 6:53:50 AM MDT	Support For Restructuring Plan	Strong community support for the restructuring plan is reported by The Block and The Crypto Times.
September 27th, 2022 11:56:00 AM MDT	Tradable Tokenized Creditor Claims	CoinFlex announces that tokenized creditor claims can now be traded back and forth against regular cryptocurrency assets in their marketplace.
September 30th, 2022 12:10:00 PM MDT	Governance Platform Launch Announcement	CoinFlex announces the launch of a governance platform as they "transition into a community-owned exchange and usher in a new decentralized governance paradigm". CoinFlex Commonwealth:

Total Amount Lost

The total amount at risk has been estimated at $196,350,000 USD. The total amount lost has been estimated at $120,000,000 USD.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

"Given its native token FLEX free falling in value, the exchange decided to use its stablecoin flexUSD to buy a large amount of FLEX from the secondary market to prop up its prices while opening a short position to hedge the spot price. Nonetheless, the one who lent out all the FLEX tokens for the exchange to sell came from Roger Ver." "[T]he counterparty to this short position was also Roger Ver!" "CoinFLEX shorting FLEX was a spontaneous act for which Roger Ver provided liquidity, otherwise no one would have wanted to be a counterparty to CoinFLEX."

“This meant that if Roger Ver defaulted on his margin, CoinFLEX’s position would not be profitable and would then be equivalent to a net long position in a large amount of FLEX spot. So, when the withdrawal restriction announcement was made, CoinFLEX’s total funds began to fall in a cyclical fashion.”

"On June 24, 2022, the exchange CoinFLEX announced that it made the decision to halt user withdraws, and the price of the platform Token FLEX subsequently plummeted, from $4.30 to less than $1.50 in four hours. At the same time, FlexUSD, the platform's stablecoin, also began to de-peg, with prices dropping as low as $0.23."

“During the recent market volatility, a long-time customer of CoinFLEX’s account went into negative equity, meaning the Individual’s account currently holds a negative balance. In response, CoinFLEX made the decision to halt user withdrawals starting from June 23rd, 2022.”

Mark David Lamb Tweet About Roger Ver

CoinFlex CEO Mark David Lamb tweeted about Roger Ver's debt to the platform.

Roger Ver owes CoinFLEX $47 Million USDC. We have a written contract with him obligating him to personally guarantee any negative equity on his CoinFLEX account and top up margin regularly. He has been in default of this agreement and we have served a notice of default.

He had a long track record of previously topping up margin and meeting margin requirements in accordance with this agreement. We have been speaking to him on calls frequently about this situation with the aim of resolving it. We still would like to resolve it.

He is denying that the debt pertains to him and so we felt the need to clarify to the public that yes - the debt is 100% related to his account. Roger Ver a citizen of the European Union who we believe has significant assets in the US, UK and other relevant jurisdictions.

CoinFLEX also categorically denies that we have any debts owing to him. His statement is blatantly false. It is unfortunate that Roger Ver needs to resort to such tactics in order to deflect from his liabilities and responsibilities.

Ultimate Outcome

Price Action on CoinFlex Token

"Decrease in FLEX price, resulting in increased losses on Roger Ver positions. Increase in Roger Ver losses, resulting in an increase in margin arrears. Increased margin arrears lead to a liquidity crisis in CoinFLEX. The liquidity crunch causes a further panic fall in FLEX price."

"In the end, Roger Ver's position was completely worn out and turned into negative equity, while CoinFLEX was left with a lot of delisting FLEX. It was revealed that CoinFLEX had a real loss of $120 million, including losses from the de-peg of the stablecoin FlexUSD and the loss of withdrawals (less than $10 million) due to the collapse of the SmartBCH cross-chain bridge, which was built by CoinFLEX."

"Wu’s source also revealed that the BCH proponent had admitted to default margin payments but did not “have enough cash flow on hand to consider using shares (of companies like Blockchain.com or Kraken) as collateral in lieu of margin.” Later, CoinFLEX CEO Mark Lamb took the matter online when two parties were negotiating, accusing Bitcoin Jesus of defaulting on $47M debt."

"CoinFLEX made headlines with “Bitcoin Jesus” Roger Ver over a dispute over Ver purportedly failing to pay $47 million in margin calls, Wu Blockchain disclosed more details regarding the collapses in its latest blog post."

"Considering that Ver provided liquidity for CoinFLEX to short its token as no one, at that circumstance, would have wanted to be the exchange’s counterparty, Roger Ver, by Wu’s estimates, was responsible for around $90M out of CoinFLEX’s total loss of $120 million. It consists of losses from the de-peg of the stablecoin and the collapse of the SmartBCH cross-chain bridge."

"The root cause of this debacle stems from not only Roger Ver’s default but also CoinFLEX’s poor risk management, Wu concluded, at the expense of users on CoinFLEX and SmartBCH. Regarding the exchange’s prospect, Wu said, it could “gradually make up the shortfall with the revenue from trading fees alone” due to its profitability, even though Roger Ver is unable to repay its debts, added Wu."

Roger Ver "is denying that the debt pertains to him and so we felt the need to clarify to the public that yes - the debt is 100% related to his account. Roger Ver a citizen of the European Union who we believe has significant assets in the US, UK and other relevant jurisdictions." "CoinFLEX also categorically denies that we have any debts owing to him. His statement is blatantly false. It is unfortunate that Roger Ver needs to resort to such tactics in order to deflect from his liabilities and responsibilities."

Roger Ver Denying Debt Owing

Roger Ver then tweeted in response: "Recently some rumors have been spreading that I have defaulted on a debt to a counter-party. These rumors are false. Not only do I not have a debt to this counter-party, but this counter-party owes me a substantial sum of money, and I am currently seeking the return of my funds."

"Even though both parties were negotiating, Lamb took to Twitter and stated, “CoinFLEX also categorically denies that we have any debts owing to him.” Plus, “Roger Ver owes CoinFLEX $47 Million USDC. We have a written contract with him obligating him to personally guarantee any negative equity on his CoinFLEX account and top up margin regularly.”"

"CoinFLEX indicated that the cause of these problems was a single individual facing temporary liquidity issues due to the recent crypto market downturn, assuring that none of the other accounts operating on CoinFLEX have negative equity."

"Today, the FlexUSD price has fallen to less than $0.30, but only if CoinFLEX does not liquidate Roger Ver's position. Taking this into account, FlexUSD also has a hairscut of about 70-80%, which means that the real price of FlexUSD is only about $0.06."

"Crypto trading platform, CoinFLEX, has issued a statement after admitting a “lack of responsiveness in the last two weeks.” The two co-founders, Sudhu Arumugam and Mark Lamb, announced commencing arbitration at Hong Kong International Arbitration Centre (HKIAC) to recover the $84 million losses from a customer. The company claimed that the individual had a legal obligation under the agreement to pay but refused to do so."

"The troubled crypto exchange, CoinFLEX, has filed for restructuring in a Seychelles court to resolve a shortfall caused by a counterparty failing to make a margin call. The company sent an email to customers informing them of its restructuring process."

"The company is considering making available 10% of balances for withdrawal. However, there are certain limitations. Users will be able to view them on their balances as locked funds, but they won’t be available for withdrawals, nor will they count as collateral. The day CoinFLEX implements this plan, it will temporarily halt trading and all long and short futures positions against each other. Only after verification will CoinFLEX re-open for trading."

"To raise the $47 million shortfall, CoinFLEX announced the issuance of a Token called Recovery Value USD (rvUSD). The rvUSD holders will receive an annualized interest rate of 20%, which will be funded by Roger Ver's repayment and income of trading fee."

"RV SPL (Recovery Value Special Purpose Limited) is a Purpose Trust* that will be created as part of CoinFLEX’s scheme of arrangements with depositors, and that Trust will be issuing rvUSD. The trust documents will be published."

"Listing locked asset markets depends on the “Publishing Everything” step. We do not want locked asset users to be trading on incomplete information when selling locked assets into unlocked assets or buyers of locked assets buying with an incomplete picture of events." "We will let users trade LUSDC, LBTC, LBCH, or any other locked asset into an unlocked asset of the same type (for example LBCH/BCH, LUSDC:USDC, LETH/ETH) on CoinFLEX order books."

"We are working to restore value to our depositors in the fastest possible way." "We know that the faster a solution can be enacted, the better for our users and for @CoinFLEXdotcom @CoinFLEX_US. We are encouraged by how efficient the Seychelles government has been. We look forward to completing the restructuring process and updating you all along the way."

“What will happen to flexUSD holders after the conversion?” "Conversion, in this case, refers to our plan to convert depositors into holders of the CoinFLEX Composite, including rvUSD, FLEX, and equity in the company." "We would make flexUSD redeemable for the Composite at any time, rather than rushing users to convert within a specific window. flexUSD as an entity (flexUSD is a separate legal entity and as that entity, a customer of CoinFLEX) would be the cap table owner of the equity until flexUSD holders redeem it."

"Once flexUSD becomes mintable again, the USDC used as collateral would be deployed to CoinFLEX repo and start accruing interest to the flexUSD account. However, CoinFLEX would not pay out that interest to holders until all Composite assets are redeemed. Note the number of redeemable Composite assets is limited and does not compound/grow. In this case, flexUSD’s account at CoinFLEX would retain the accrued interest until it has disposed (via redemptions) of all the Composite assets. After Composite assets are fully redeemed, CoinFLEX would payout all accrued flexUSD interest over 30 days in 8-hour interest payment periods, which users would receive in addition to the regular 8-hourly interest payments."

"Under the restructuring plans, CoinFlex's creditors will own 65% of the company's equity and employees will be allocated 15% to vest over time in a share option program. Investors in CoinFlex's Series A funding round will be wiped out, while those who took part in its Series B will remain shareholders."

"Yes. flexUSD will be redeemable on CoinFLEX.US, for the Composite for a limited time (such as several weeks) following the Seychelles government-mandated solution voted upon by depositors. After that, CoinFLEX.US users will continue to be able to trade (into USD) or withdraw flexUSD. flexUSD on CoinFLEX.com will be redeemable for the Composite until flexUSD runs out of Composite assets."

"If flexUSD trades above $1 for an extended period, then CoinFLEX would re-enable flexUSD to be minted for 1 USDC while continuing to allow redemptions converted into the Composite. Post the re-opening of flexUSD minting, if there were no more rvUSD, shares, and FLEX Coins Composite available for redemptions, flexUSD would be redeemable for 1 USDC once again."

"After almost five hours of voting, tokens representing more than 99% of creditor assets had agreed to the proposed restructuring deal, according to a poll on Snapshot. Voting is due to end on Tuesday." "The proposal needed an approval of 75% of creditors by value of the CoinFLEX vote tokens to be passed. Currently it has an approval of 99.38%."

Next Steps Starting To Be Published

6 weeks into their efforts to recover the debt, Mark David Lamb publishes about the next steps of restructuring on Twitter.

6 weeks ago we froze withdrawals and filed a default notice on @rogerkver which was covered extensively by @business. We are working to restore value to our depositors in the fastest possible way.

Since then, we have begun pursuing @rogerkver in arbitration. Our external counsel are highly confident that our case is rock solid and that we will reach a successful outcome.

@SudhuCoinFLEX and I have been in close discussions with our largest depositors and have arrived on a solution of issuing all rvUSD (tokenised claims to the Roger Ver arbitration proceeds), the majority of shares in CoinFLEX, FLEX coins and more USDC to all depositors.

This will be accomplished via the Seychelles IBC Restructuring process. We are going to be issuing voting tokens to all depositors and flexUSD holders who will then vote using @SnapshotLabs powered voting infrastructure.

During this process we will also be publishing our balance sheet along with a number of legal documents.

In our two blog posts today we have also included an outline of our plans for flexUSD and how that will be handled.

We know that the faster a solution can be enacted, the better for our users and for @CoinFLEXdotcom @CoinFLEX_US. We are encouraged by how efficient the Seychelles government has been. We look forward to completing the restructuring process and updating you all along the way.

Total Amount Recovered

The total amount recovered is unknown.

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

What parts of this case are still remaining to be concluded?

“We look forward to welcoming a new group of shareholders to CoinFLEX and are glad to be in a jurisdiction where we can quickly resolve this situation and return maximum value to depositors,” CoinFLEX CEO Mark Lamb told Bloomberg.

"Despite the market conditions, exchanges can be steadily profitable, so long as they do not take users' money and make other risky investments. All the exchanges that have failed in history have used money for other purposes, or even increased leverage on top of it. Therefore, even if Roger Ver is unable to repay its debts, CoinFLEX will be able to gradually make up the shortfall with the revenue from trading fees alone."

Transition To Decentralized Governance

CoinFlex is presently undergoing a transition to a decentralized governance model. This appears to have been well received by their community. CoinFlex Commonwealth:

General Prevention Policies

The cause of the issue was a failure to insure or collateralize the situation where the loan was not repaid. This was specific to Roger Ver's case and not the general policy of the platform. Luckily, the FlexCoin platform was able to work out a plan with creditors and it seems like funds have a decent opportunity to be recovered.

Individual Prevention Policies

Avoid the use of smart contracts unless necessary. Minimize the level of exposure by removing or withdrawing assets whenever possible. Aim to choose smart contracts which have obtained third party security audits, preferably having been audited by at least three separate reputable firms. Pay attention to the audit reports, which smart contracts are covered, and whether the smart contract has been upgraded or modified since the report. Ensure that any administrative functions with the ability to remove funds from the smart contract are under the authority of a multi-signature wallet which is controlled by at least three separate and reputable entities.

When using any third party custodial platform (such as for trading), it is important to verify that the platform has a full backing of all assets, and that assets have been secured in a proper multi-signature wallet held by several trusted and trained individuals. If this can't be validated, then users should avoid using that platform. Unfortunately, most centralized platforms today still do not provide the level of transparency and third party validation which would be necessary to ensure that assets have been kept secure and properly backed. Therefore, the most effective strategy at present remains to learn proper self custody practices and avoid using any third party custodial platforms whenever possible.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

A key problem here was the lack of visibility and understanding of a special arrangement between the CoinFlex platform and celebrity Roger Ver.

Do not take customer assets and performing highly risky trades and investments without giving visibility to customers.

The introduction of a multi-signature wallet would have likely decreased the likelihood of the risky loan. It would require the express approval of the majority of the CoinFlex team.

All wallets, minting functions, and critical infrastructure should be implemented with a multi-signature requirement, with a recommended minimum of 3 signatures required. This means that making important changes or approving spending will require the keys held by at least 3 separate individuals within the organization to approve. The multi-signature should be implemented at the lowest layer possible, all key holders should have security training, and all key holders should be empowered and encouraged to exercise diligence.

The team should have investigated their risk and contingencies in the event of default.

All aspects of any platform should undergo a regular validation/inspection by experts. This validation should include a security audit of any smart contracts, reporting any risks to the backing (of any customer assets, ensuring treasuries or minting functions are properly secured under the control of a multi-signature wallet, and finding any inadequacies in the level of training or integrity of the team. The recommended interval is twice prior to launch or significant system upgrade, once after 3 months, and every 6 months thereafter. It is recommended that the third party performing the inspection not be repeated within a 14 month period.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

The primary tool to be used would be the third party assessment, which should include a risk analysis of the lending practices.

All platforms should undergo published security and risk assessments by independent third parties. Two assessments are required at founding or major upgrade, one after 3 months, and one every 6 months thereafter. The third parties must not repeat within the past 14 months. A risk assessment needs to include what assets back customer deposits and the risk of default from any third parties being lent to. The security assessment must include ensuring a proper multi-signature wallet, and that all signatories are properly trained. Assessments must be performed on social media, databases, and DNS security.

Set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services within the country, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.