{"id":23280,"date":"2022-06-29T23:33:02","date_gmt":"2022-06-29T23:33:02","guid":{"rendered":"https:\/\/davidgerard.co.uk\/blockchain\/?p=23280"},"modified":"2022-06-30T06:56:25","modified_gmt":"2022-06-30T06:56:25","slug":"coinflex-gets-roger-verified","status":"publish","type":"post","link":"https:\/\/davidgerard.co.uk\/blockchain\/2022\/06\/29\/coinflex-gets-roger-verified\/","title":{"rendered":"CoinFLEX gets Roger Verified \u2014 the mystery of the missing Bitcoin Cash"},"content":{"rendered":"

By Amy Castor and David Gerard<\/i><\/p>\n

I’m Roger Ver, long-time bitcoin cash advocate and investor.<\/a> Today I’m at the CoinFLEX world headquarters in an undisclosed location. I had a nice chat with CoinFlex CEO Mark Lamb about their current situation. He tried to margin call me, so I used my Brazilian Jiu Jitsu skills to throw him to the floor, and …<\/em><\/p>\n

CoinFLEX is a seemingly small cryptocurrency exchange whose retail face specializes in bitcoin cash (BCH), a fork of bitcoin with larger blocks for more transactions. We confess that we\u2019d never heard of CoinFLEX until a few weeks ago.<\/p>\n

CoinFLEX also turns out to run a huge dark-pool crypto derivatives exchange and\/or repo<\/a> market, serving some notable proportion of the wider crypto trading market.<\/p>\n

The exchange was founded by Mark Lamb, who previously founded UK crypto exchange Coinfloor in 2013. Coinfloor went under in 2018. CoinFLEX was founded the year after. Initial investors included Digital Currency Group, Polychain Capital, and Roger Ver \u2014 a bitcoin old-timer since the Mt. Gox days, one of the founders of bitcoin cash in 2017,<\/a> and BCH\u2019s most ardent promoter. [Financial News<\/i><\/a>; <\/i>Amy in Bitcoin Magazine<\/i><\/a>]<\/p>\n

CoinFLEX has been having an interesting time here in the crypto crash.<\/p>\n

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You can generate your own Roger Verification copypasta at the Buttcoin Foundation site<\/a><\/i><\/small><\/p>\n

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The CoinFLEX extended universe<\/h3>\n

CoinFLEX has set up an entire complicated system to help BCH trades along.<\/p>\n

FlexUSD is claimed to be \u201cthe world\u2019s first interest earning stablecoin\u201d \u2014 Lamb claims to have invented the interest-bearing stablecoin model.<\/p>\n

FlexUSD claims to be backed by USDC \u2014 which makes no sense, because if you have a stablecoin backed by another stablecoin, why not just use that stablecoin? [FlexUSD<\/i><\/a>]<\/p>\n

FlexUSD pays interest on-chain every eight hours.<\/p>\n

There is a separate coin called FLEX, which is the exchange\u2019s native token \u2014 you can use FLEX to reduce your trading fees. FLEX is also a governance token for FLEXDAO. [Coinflex website<\/i><\/a>]<\/p>\n

Coinflex also operates SmartBCH, a sidechain for BCH that uses Tendermint for consensus. SmartBCH has yet another token, SEP20, for paying gas fees. You can run smart contracts on SmartBCH. [SmartBCH<\/i><\/a>; SmartBCH whitepaper<\/i><\/a>]<\/p>\n

It\u2019s utterly unclear why anyone needs all of this for a minor altcoin like BCH, except to do ever-more-obfuscated pretend-finance.<\/p>\n

The mystery of the missing BCH<\/h3>\n

On 20 June, CoinFLEX tweeted that \u201c+10% APY is sustainable in #crypto, especially with #stablecoins\u201d \u2014 specifically, with their own FlexUSD stablecoin. Buy! Buy! Buy! [Twitter, <\/i>archive<\/i><\/a>]<\/p>\n

But FlexUSD\u2019s dollar peg was already shaky on 18 June \u2014 and the coin dropped to $0.82 on 24 June. As we write this, it\u2019s at $0.38, only trades on BCH DeFi markets and has a daily volume of $357,000 \u2014 the level you\u2019d expect from bots trading a dead altcoin. [CoinGecko<\/i><\/a>, 14 days<\/i>]<\/p>\n

On 23 June, CoinFLEX stopped all withdrawals from the exchange, citing \u201cextreme market conditions.\u201d [blog post<\/i><\/a>]<\/p>\n

Based on conversations on Reddit at the time, It appears that $90 million worth of BCH held by CoinFLEX went missing. Coincidentally, large sales of roughly 30,000 BCH (about $3 million) a day have been appearing on Binance. The subreddit for BCH, r\/btc, noticed the movements immediately and started tracking the story. [Reddit<\/i><\/a>; <\/i>Reddit<\/i><\/a>]<\/p>\n

Lamb had promised his customers an announcement on 27 June, and that withdrawals would resume on 30 June.<\/p>\n

On 27 June, Lamb went on Bloomberg TV to\u00a0 claim that a single trader got margin called, and wouldn’t cough up further collateral. Lamb later tweeted that this trader was Roger Ver. Lamb says Ver owes CoinFLEX $47 million in USDC. CoinFLEX claims \u201c$166.8 million\u201d in \u201ctotal value locked,\u201d so that\u2019s quite a chunk. [Tweet<\/i><\/a>, <\/i>archive<\/i><\/a>; <\/i>Bloomberg<\/i><\/a>]<\/p>\n

Ver got a special deal on margin trading \u2014 one where he doesn\u2019t get liquidated.<\/p>\n

As an early investor in CoinFLEX, who made it happen for Lamb, it probably got awkward when Lamb needed the money now,<\/i> and Ver ghosted him.<\/p>\n

Ver denies everything: \u201cNot 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.\u201d [Tweet<\/i><\/a>]<\/p>\n

Not the Roger Ver Coin<\/h3>\n

So all the money\u2019s gone. What to do? Let\u2019s start a new coin!<\/p>\n

Lamb is launching a new coin called Recovery Value USD (rvUSD) \u2014 surely the \u201cRV\u201d doesn\u2019t stand for \u201cRoger Ver\u201d \u2014\u00a0to raise the $47 million to cover the shortfall in his books. He promises 20% interest on the coin. Hey, it worked for Bitfinex after their hack<\/a>. [Blockworks<\/i><\/a>; Twitter<\/i><\/a>; white paper<\/i><\/a>, PDF<\/i>]<\/p>\n

Lamb\u2019s plan is to use the money from new investors in this coin to pay back his old investors.<\/p>\n

Lamb talked about this new coin when he went on Bloomberg. We realise that you probably prefer reading text \u2014 but if you decode the crypto blather, this interview is jawdropping, and your eyebrows will take off into orbit: [Bloomberg<\/i><\/a>]<\/p>\n

We have this asset. It is an ultra-high net worth individual. They owe us these funds. We do believe they are going to get us these funds at some point in the future. And we wanted to make it such that the assets all match up and everything matches up in a way that it is a market-based and we pass on this risk to investors [who] understand what the risk is and are eager for this risk \u2026 and basically solve the problem. Right now we can\u2019t have withdrawals. There are lots of different ways of solving these problems in crypto finance \u2026<\/p><\/blockquote>\n

Lamb wants people to bet on Ver paying CoinFLEX back \u2014 even though Ver says he doesn\u2019t owe them anything. Instead of using, e.g.,<\/i> lawyers, Lamb wants to do this in a way where \u201cmore people get to participate in the solution.\u201d<\/p>\n

The 20% interest is paid in more rvUSD … which will be paid out as part of the pool from the repayment, thus reducing the pro-rata? It isn’t quite clear how this pays anyone back another 20%.<\/p>\n

Lamb assures us that eventually everything will be transparent, and they will get an actual auditor. OK, that\u2019d be nice.<\/p>\n

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Play Now, My Lord<\/h3>\n

CoinFlex AMM+ is an automated market maker. If you are a user of Coinflex, they let you use the algorithm, and it trades for you.<\/p>\n

Anyone can use Coinflex to set up an automated market maker. [CoinFLEX<\/i><\/a>] To gamify AMM+, CoinFLEX put a ridiculous video game-style front page on the subsite. (David’s wife Rose spotted the image as being from Stormheim in World of Warcraft.) [Twitter<\/i><\/a>]<\/p>\n

CoinFLEX claims remarkable<\/i> trade volumes for its size. The volumes that the exchange reports to CoinGecko are vastly out of proportion to its website popularity on SimilarWeb \u2014 even after CoinGecko \u201cnormalises\u201d the claimed volume numbers.<\/p>\n

Is CoinFLEX a small exchange acting as a market maker for Bitcoin Cash, or an enormous financial products broker acting as the market for crypto whales and exchanges to trade complicated derivatives products? It seems to be both \u2014 the liquidity generated by AMM+ is likely helping CoinFLEX serve as a derivatives exchange for the high rollers.<\/p>\n

In his Bloomberg interview, Lamb confirmed that CoinFLEX runs a private derivatives market: \u201cAt CoinFLEX we believe in markets, transparency and tokenization. We\u2019ve done that with one of our other products, FlexUSD. It\u2019s funding a market, our repo market, and it\u2019s a token.\u201d He has previously said that this market does billions in repo trades a day. [news.bitcoin.com<\/i><\/a>]<\/p>\n

If one bad trade risks taking CoinFLEX down, that\u2019s yet another time bomb under the crypto market. [Reddit<\/i><\/a>]<\/p>\n

What happens now?<\/h3>\n

CoinFLEX\u2019s original 23 June notice said that withdrawals would resume by 30 June. You\u2019ll be utterly unsurprised to hear that this isn\u2019t happening. [CNBC<\/i><\/a>]<\/p>\n

Lamb told CNBC that:<\/p>\n