ASH BENNINGTON: Welcome to Real Vision's Crypto Seismic. I'm Ash Bennington. My guest today is Mark Lamb, CEO of CoinFLEX, to talk about what's been happening, the challenges CoinFLEX has faced these last several weeks. For transparency I should mention first, Leslie Lamb is the Chief Marketing Officer of CoinFLEX and is a frequent contributor on Real Vision's Crypto Unwrapped, a show on this platform. She is also Mark's spouse.
Second, Real Vision has no commercial relationships with CoinFLEX, I should say I don't and have never invested in any CoinFLEX tokens. And I'm not nor have I ever been a CoinFLEX user. Mark, with all that said, let's jump right in. This is a critical story that is right at the center of the crypto space right now. Your shop, CoinFLEX, froze redemptions beginning June 23rd, that's fancy Wall Street speak for clients can't withdraw money. Mark, in your own words, what happened? And what's the current status at CoinFLEX right now?
MARK LAMB: Yeah, the status right now is that withdrawals are still frozen. We are in active conversations with a number of different parties, depositors, distressed debt buyers, and potential equity investors, including existing and new equity investors, basically in talks about best ways to resolve this problem.
The primary and ideal solution still appears to be a selling out of the rvUSD tokens that we are looking to issue and have not issued yet, but we are looking to issue them. We do have significant interest in that token, so we have significant interest in that token, we are aiming to resolve this matter as soon as possible. The goal is to have full withdrawals available to customers as soon as possible via the solutions that we're looking at.
ASH BENNINGTON: So, redemptions are currently still frozen right now?
MARK LAMB: That's correct.
ASH BENNINGTON: Let's walk through some of the context around this. I want you to read through a couple of statements. First, Mark, you tweeted, "Roger Ver owes CoinFLEX 47 million USDC", that's the USDC stablecoin, we have written contract with him obligating him to personally guarantee any negative liquidity 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.
You tweeted that three days ago on June 23rd at 1:11pm. This was perhaps in response to Roger Ver's tweet on June 28th, at 12:34 Eastern Time, "recently, some rumors have been spreading that I have defaulted on a debt to a counterparty. These rumors are false. Not only do I not have a debt to this counterparty, but this counterparty owes me a substantial sum of money, and I am currently seeking the return of my funds. Furthermore, in an email to MarketWatch, there I also said I stand by my original tweet, I'll make more information available to the public as soon as possible".
Real Vision reached out to Mr. Ver for comment on this. Mark, give us a little bit of a context around what's happened here. You talked about on your blog that there was a significant customer default, but you did not mention Mr. Ver by name. Give us the background on what's happening.
MARK LAMB: Yeah, so, we wanted to protect the customer's privacy initially. That being said, when it did seem apparent that he was effectively rejecting the claim privately to people that this debt was his, we had to make it clear to the public our stance on the matter and the clarity around the debt. And so, I think that's actually been useful in our discussions with potential investors, both debt and otherwise. And that has also resulted in more parties coming forth as potential investors in the token and otherwise.
ASH BENNINGTON: So, I also wanted to read, to just frame up a little bit of context on what caused this to begin with. So, on the blog post, there's a post on this is the CoinFLEX blog, written by you or your team, and the quote is, "in this case, the individual had a non-liquidation recourse account. This condition required the individual to pledge stringent personal guarantees around equity and margin calls in exchange for not being liquidated". In other words, his position won't be liquidated if he falls below the margin requirements.
I know this is a difficult question, Mark, but why would an exchange operate so close to its risk limits that a single individual defaulting on a margin call would force you to suspend redemptions of other customers?
MARK LAMB: Yeah, that's a great question. And before I answer that question, I do want to say that we are going to be reworking our margining rules and contracts after this, such that there is no accounts that have manual margin agreements. This is something that most exchanges do. They have non liquidation accounts that are institutional customers or large whale customers. This is something that is commonplace not only in crypto, but also in the traditional financial industry.
And although it may be commonplace, it's still not something we should be doing going forward. It's in hindsight, we would not have done it in the past. The reason for an account like this, the reason for an arrangement like this is it enables the customer to trade with more confidence that they will not be liquidated and keep cash on the sidelines in order to fund those liquidations without having to worry that their ability to meet those margin calls won't be hindered by the fact that they might be asleep.
And every previous margin call was promptly met. So, this customer's a longtime customer of CoinFLEX, every prior margin call was met. There's a lot of clarity around this situation. The goal now is just to make depositors whole. And that's what we're spending every moment working on. We have external advisors helping us both on the legal side, and also on the recruitment of buyer side, the fundraising side. And we're just working through the process there in getting this built.
ASH BENNINGTON: So, let's move on to the proposed solution of the new investors that you're talking about. So, let's discuss this in some detail here. What is rvUSD? I read the whitepaper online. Perhaps you can explain some of the conditions or terms in that. There are a few different frameworks that you guys have written about. There's a primary exit mechanism, an additional exit mechanism and a series of incentives, early subscriber incentives and Flex component incentives.
It's obviously a bit of a complex structure, walk us through, first of all, what the goal of that token is. And second, what some of the parameters that you described in the whitepaper are.
MARK LAMB: Yeah, absolutely. So, I will describe that, I also want to make it clear to the listeners that that whitepaper is a draft. And there will definitely be changes to that draft before the token goes live for issuances. We are in conversations with the buyers that will represent the majority of purchasing power in this token. And so, we're finalizing the terms with them. But for purposes of discussion, I'll talk about--
ASH BENNINGTON: Since you mentioned that, let me ask you this, is it correct to say that your ability to make investors whole is predicated on this token raise being successful?
MARK LAMB: No, there are other solutions as well that would make investors whole. So, it's not the only solution we have available to us. We're looking at numerous solutions there. And by far, above all else, the priority is making depositors whole. That comes in front of everything else. And so, we're going to do everything we can to make sure that happens, whether it's with this token or with a different type of solution.
ASH BENNINGTON: So, what's the current status of the rvUSD token right now? Where are you in terms of dollar terms in the race? How close are you to meeting the goal? And how close are you to ultimately closing that draft so that it can be executed?
MARK LAMB: Yeah, that's a great question. I think a lot of customers have expressed interest in getting an exact dollar figure. And while I do have some rough estimates in my head, it's tricky to give an exact figure because we're still finalizing the terms. And so, I don't want to misstate any facts. I want to just stick to the facts and give the public as much transparency on this as possible. I think we have a group of buyers that represent the majority of the issuance of this token, maybe even significantly more than the majority.
But the key thing with that group is coming to terms that will work for everyone around the exact mechanics of that. So, we're close on this, we're talking not only to that group, but also new investors and other potential solutions to this. But the good thing is, we have a large group of people interested in this, we have a clear path to resolution if we can get to terms with this group, and I'm very confident we can do that.
ASH BENNINGTON: Mark, let's talk about the nature of the hole that you guys are trying to fill, give us a sense of where you are in terms of your capital positions, and where that is relative to your obligations to depositors.
MARK LAMB: I can't comment on those specific figures at this point in time. But what I will say is that our goal is to be completely transparent with that information. At a bare minimum, after this is resolved, if we can do it during resolution, we will. We are making that information clear to some of the third parties we're talking to that are key anchor stakeholders in all of this. And so, yeah, the goal is to make depositors whole and then come back and aim to emerge as one of the most transparent exchanges.
There are a lot of exchanges that do this activity. There's also a lot of lending desks and yield platforms, and other types of businesses that are either doing unsecured lending, or they're giving manual margin or they're doing other types of activities. We want to be in such a position where we can say, look, if you don't trust the numbers we're giving, if you don't trust the balances on the database, you can check with an external auditing firm, you can see all the futures positions, you can see all the margin backing those futures positions, you can see all the balances backing those spot assets, and you can check that we're in a 100% healthy state, 24/7, 365.
That's our goal, we have an auditing firm in mind, they've already integrated with the bulk of our technology stack. And after this, we weren't thinking we were going to be working on this project to the degree that we are going to be working on it now. But now that this has happened, we know that we're going to be making pretty much every bit of relevant open interest and margin backing data available to the public so that we can not only regain trust from making depositors whole, but so that we can become one of the most trusted venues that.
ASH BENNINGTON: Mark, it sounds like you've given a great deal of thought to how to improve the platform in the future. And we appreciate you being with us here today to discuss this. I know this must be an incredibly chaotic time for you. But I'm sure there are investors listening, and they will want to know, why can't you discuss the nature of the hole and where we are relative to making depositors whole? And what should investors take from the fact that you can't comment on that right now?
MARK LAMB: Yeah, that's a fair question. I think with these matters, what I'll say is that most companies aim to give no information. They're not doing press interviews, they're giving very limited tweets. And everything is heavily caveat with lawyers. Our lawyers understand my stance, which is that, to the extent possible, we want to give as much information and do as many public statements and as much transparency as possible.
And so, they've worked on the framework that enables me and CoinFLEX to operate that way. I think it's a very different way to a lot of companies that have this type of financial stress from this type of market condition where there's not only a price pullback, but a credit pullback at the same time. That being said, I don't want to give that as an excuse for why we can't give exact numbers at this point in time. Instead, what I'll just say is we're working on getting all of the exact numbers out there into the public to as much degree as we possibly can.
And if there is something we haven't made public at this point in time, we'd like to make it public at a future point in time where that future point is as soon as possible. The priority is talking to buyers of these tokens and investors in the business above that, but that transparency is also going to aid us in in recovering from this situation in a really successful way.
ASH BENNINGTON: You mentioned that you can't give exact numbers at this time, can you give approximate numbers? Is there a way to put an estimate or a framework around approximately where those capital positions are relative to depositor demand?
MARK LAMB: No, I'm not able to, at this point, get the information you're looking for. I know, it's extremely valuable information.
ASH BENNINGTON: So, let's talk a little bit about the token itself, the whitepaper describes a 20% APR. Where's that yield coming from? Where's that coming from on a cash flow basis? I asked this question, because one of the things that's been discussed, quite frequently seen in the space right now with the, for example, the gating of Celsius, is these very high rates of return, particularly relative to anything that we see, for example, on 10Y Treasurys, where does that 20% return come from that you guys are going to pay investors on rvUSD?
MARK LAMB: Yeah, so that's paid in kind, that's an increase in the obligation related to a successful recovery of funds from rvUSD. And what that means is obviously, that's going to be pursued as part of recovering these funds, the interest and principal will both be pursued. That's effectively where the interest was coming from. We're not looking to hide any aspect of this including where the interest is coming from.
ASH BENNINGTON: So, a term of art here payment in kind, sometimes called PIK or in specie payment is effectively debt that pays back other securities rather than cash or cash equivalent securities, or I would imagine in this space, Bitcoin. So, effectively, what you're saying is the 20% APR on that is going to be paid in new FLEX rvUSD tokens or in Flex tokens?
MARK LAMB: In new rvUSD tokens, yeah.
ASH BENNINGTON: So, the rvUSD tokens will pay interest in rvUSD tokens?
MARK LAMB: Correct.
ASH BENNINGTON: Obviously, we should probably talk a little bit about some of the market implications for this. I think we have a chart that we can show right now of FLEXUSD. Obviously, this is a very difficult chart for investors to look at and I'm sure a difficult chart for you to see when you see these significant steep declines in the value of the FLEXUSD token, does it give you any concern about your ability to raise new capital with a new token that pays in kind?
MARK LAMB: I think the buyers of this token are very aware of the details of the claim, which is an asset, which is backing, which is related to this token. And I think the relation there is critical. And the buyers are ultimately buying into a successful payout. And so, that payout, I think, is very achievable. The grounds for it are clear. And we're just focused on raising these funds, so we can restore all depositors' confidence and capital to them.
ASH BENNINGTON: Mark, you said you're talking to investors about the rvUSD token and also potential other mechanisms for raising funds. Can you give us some color or context about who those investors might be? For example, are they institutional investors? Are they financial institutions? Are they hedge funds? What types of folks are you talking to right now?
MARK LAMB: Yeah, so we've talked to people in the distressed debt industry, we've talked to people in the crypto industry. We've talked to other crypto businesses and other traditional businesses. I think we've also talked to our existing depositors, our existing investors, and potential new investors. So, we're talking to a pretty broad swath of different types of capital. And that's actually been really helpful in getting a sense of where the flexibility is, where the appetite is, and also the due diligence that some of those investors have done.
They have been very gracious in letting us share that due diligence with other types of investors. And so, that's also been useful. We've gained a lot of information from this process. We're continuing to gain information from this process. And all of these things ultimately are just aiding our process and our ability to raise this capital. So, we're going to continue. It's a very difficult time for our customers. And if you're a customer of CoinFLEX right now, I just want to say that this is not a situation we ever wanted to be in. I deeply regret this happened, I think I can just-- my promise to you is that we were going to do everything in our power to fix the situation.
And yeah, it's a situation we know that once we get out of this situation, we're never going to be in because I think the amount of information and knowledge we've learned from this is enormous. And the good thing about having gone through it is you're only going to go through it once. It's something where the solution to it is extremely crystal clear. And we can fix it in a way that is permanent.
ASH BENNINGTON: How would you characterize the progress you're making on that process right now? Would you say it's reasonable and fair to say that you are close to getting this round fully subscribed? How would you characterize the conversations you're having with investors with regard to filling this round?
MARK LAMB: Yeah, that's a great question. And I think our customers and investors and everyone, the public wants to know what the facts are. And so, saying that we're close to raising is subjective, it's at the end of the day, subjective. So, I don't want to make a statement like that, what I would say is, each day, I'm feeling more competent. Each day, I'm learning more things, getting connected to more people. Each day, more people are learning more things that will help them make educated and informed decisions on their capital.
And we are going to continue to act with the best representative interests of our customers, and other stakeholders, but customers above all else, and we're going to continue to try to resolve this situation as fast as possible. Again, each day, I'm more confident that we're going to get to a really positive solution for depositors where they can withdraw their funds. But are we close? It's a subjective thing. I don't want to give that promise.
ASH BENNINGTON: So, let's talk about that potential resolution. You mentioned earlier that there could be some changes to the current whitepaper, that it's just a draft. What do you anticipate those changes might be? Are there particular pressure points or pain points that you're hearing from investors? Or is there any other sense of what might change?
MARK LAMB: Yeah, so, there's a few different toggle points on that token. There's a few different toggle points. And so, we're looking at all those different things that could be tweaked. It's the thing where I'm very confident that there is something that works for everyone. And it's not like those negotiations are likely to break the process or anything, but the key thing is finding something where everyone is a winner, and everyone can-- the degree to which people are going to stomach something that is risky for them, they're getting compensated for that risk.
So, I think that's effectively where we're at, is just figuring out the best compensation for risk for the folks that are taking risk on buying this token.
ASH BENNINGTON: So, let's talk a little bit about that, the compensation for risk, with