New Report Ousts Bitfinex’s Plans of Raising $1 Billion in Bizarre ‘Initial Exchange Offering’
Embattled cryptocurrency exchange Bitfinex is reportedly planning to raise $1 billion worth of Tether (USDT) in what they’re calling an ‘initial exchange offering – although it has some bizarre traits that differentiate it from other IEOs we’ve seen on Huobi and Binance in the past.
The report comes courtesy of Dovey Wan on Twitter:
“BREAKING and WTF…Bitfinex is planning on a exchange token sale + IEO…plan to raise $1B in $USDT…This is really a WTF situation…”, wrote Dovey Wan on Monday evening.
Dovey Wan claims that she later confirmed the news with “one of BFX equity share holders”.
BitcoinExchangeGuide.com has not been able to independently corroborate those reports. However, other crypto media outlets have started to pick up the story.
Dovey Wan appears to have well-placed sources in the crypto community. If the name sounds familiar, then you may remember how Dovey Wan was the first to break the hack of Bithumb last month.
Chinese billionaire and bitcoin trader Zhao Dong, meanwhile, appeared to verify Dovey Wan’s report. A few minutes after Dovey Wan’s tweet appeared online, Zhao Dong confirmed in Chinese that Bitfinex was planning to launch an IEO and that several big whales had already reserved $300 million of the USDT allocations.
If you believe Dovey Wan, her sources, and Chinese billionaire Zhao Dong, then the Bitfinex initial exchange offering is all but confirmed. Of course, we really have no idea what’s going on here. Given Bitfinex’s recent activities and allegations, however, this initial exchange offering is truly bizarre.
The Controversial Bitcoin Exchange Gets Even More Controversial
Bitfinex has been shrouded in controversy for several years. The exchange has direct connections to Tether, which makes the popular USDT stablecoin. That stablecoin claims to be backed 1:1 by USD cash reserves, although the true nature of those reserves has changed over the years – including whether or not they exist in liquid form.
Bitfinex has also been less-than-transparent about any aspect of its operations, its banking partnerships, and other information.
Last Friday, things got even worse for Bitfinex when the New York Attorney General sued the exchange for fraud.
The NY AG claims that Bitfinex took a suspicious loan from its sister company, Tether, to cover up an $850 million hole in its finances. The hole was caused after Bitfinex’s payment processor, Crypto Capital Corps, failed to return locked up funds.
Bitfinex’s many prominent critics, meanwhile, have been arguing similar things online for years, claiming that Bitfinex and Tether have a history of shady business dealings, and that the people running the companies are complete scam artists. Now, those claims are looking more and more credible.
Of course, nothing has been proven so far. Bitfinex has denied the charges and claims the funds had been “seized and safeguarded” by authorities in the US, the UK, Poland, and Portugal.
How Would a Bitfinex IEO Work?
An initial exchange offering involving Tether and Bitfinex would be an unprecedented combination of stupid and bizarre.
We’ve seen initial exchange offerings (IEOs) in the past. They’re a legitimate crowdfunding mechanism. Traditionally, an IEO takes place when tokens are sold via a single exchange.
So far, Binance and Huobi have dominated the IEO scene.
With the Bitfinex IEO, the company is selling its own tokens (Tether) on its own exchange. The company wants people to pay real crypto and fiat currency in exchange for a stablecoin that could potentially be backed by nothing.
Bitfinex would also be using the IEO to specifically cover the gap in funds revealed by the New York filing.
The New York Attorney General claims that Bitfinex is missing $750 million in reserve funds behind USDT due to a shady deal between Bitfinex and its sister company, Tether.
Bitfinex claims these funds aren’t missing, and that they’ve simply been seized by financial authorities.
Why a Bitfinex IEO Could Be a Huge Problem
As Wan herself pointed out, Bitfinex conducting an IEO would be a weird and flawed strategy:
“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,” she wrote.
“[Bitfinex] has already securitized + tokenized its future cash flow for their last hack, this is another layer of leverage on top.”
In other words, Bitfinex and Tether are missing $750 million from Tether’s reserve fund, which means USDT is backed by (at least) $750 million less USD than it’s supposed to have.
To (apparently) solve this problem, Tether wants to raise $1 billion while also distributing $1 billion in new USDT. Tether is still going to owe (at least) $750 million to its reserve fund.
It’s like you have a big fire in your kitchen. Instead of putting out that fire, you start a smaller fire in your living room, then put out the fire in your living room and claim everything is fine.
Eventually, your questionable firefighting tactics will cause the house to burn down.
Crypto Community Contributor's Take on the Matter:
Zerononcense is one our of valued contributors and had this input to add to the situation.
Fairly major release from user ‘DoveyWan' (same person that was the first to accurately break the news of the Bithumb hack):
Normally, this channel would not include something like this without a definitive statement on the record unless it came from ‘Bloomberg', ‘New York Times', etc., but DoveyWan has shown enough accuracy in the past with her reporting to where this should at least be considered.
Again, corroborating evidence is needed before the pitchforks come out – but hopefully this inspires investigation for anyone that may have the connections/sources to validate such information.
If this is true, then presumably Bitfinex would benefit by:
1. Creating an artificial demand for USDT from people looking to acquire some to participate in the IEO (we saw this with $BNB, $KCS, and other exchange tokens from exchanges adopting the IEO model).
2. Would probably help Bitfinex raise some easy money if they have some allocation of whatever project they are looking to launch through the IEO.
Overall, it is not implausible that Bitfinex would be launching an IEO.
A pretty large number of exchanges have either publicly announced intentions of doing so or have done so already. In particular, exchanges based in Asia somewhere have been the biggest fans of IEOs.
OKex, Huobi, Binance, KuCoin, etc., have all launched IEOs. Bitfinex is reportedly established in Hong Kong. So, on a logical level – this doesn't float beyond the realm of ‘believable'.
However, what makes it obviously ‘surprising' and more newsworthy than those other exchanges launching an IEO is that:
1. Bitfinex is being investigated and potentially prosecuted for securities fraud by the New York A.G. (OAG)…Specifically for their issuance of USDT. So, launching a public offering of a security (IEO) based on Tether would probably be the biggest ‘F*** you' to the OAG that Bitfinex could give.
2. Bitfinex is under immense scrutiny from the community in general. The premium on Bitfinex is floating at a little over 6% (in relation to Coinbase's BTC price), which shows significant disparity in investor confidence in Bitfinex's platform and USDT vs. fiat-based exchanges. Notably, Bitfinex is even holding a premium to CEX.io (which is also a Tether-traded exchange that is connected to CCC), so that indicates that at least some of this distrust is embedded in Bitfinex itself, rather than just fears about USDT. Thus, it seems unlikely that an IEO would be particularly successful on Bitfinex at this point in time.
3. I'm not a PR person…but this doesn't look like a good PR move (if true). In fact, the best move for Bitfinex would probably be to try to float as far below the radar as they possibly can until this situation is resolved (if it even can be resolved). Launching an IEO would accomplish the exact opposite.
Again, this should be validated/confirmed outside of Doveywan. Not to say she isn't reliable at all – but proper due diligence demands it in this case. This is a great lead though and it should be pursued as such. I trust you all are discerning individuals that are intelligent and responsible enough to digest this information with all of the above considerations in mind.
Could the Bitfinex Exchange Sale Succeed?
Oddly, Tether remains hugely popular in Asian markets. Some – including the team at Decrypt Media – believe Tether’s popularity could allow this exchange sale to actually succeed.
Don’t forget that it’s Asian markets who spearheaded the IEO movement. US investors, meanwhile, are banned from participating in them.
Bitfinex has not responded to the claims, and we have not been able to confirm news of the Bitfinex initial exchange offering.
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