Exclusive: Bitcoin Jesus Roger was Liquidated and Trading CoinFLEX Stopped Withdrawal Insider

Wu Shuo Author|Wu Zhuocheng

Editor of this issue|Colin Wu

On June 24, 2022, the exchange CoinFLEX announced the suspension of withdrawals, and then the price of the platform Token FLEX plummeted, falling from $4.3 to less than $1.5 within four hours. At the same time, the platform's stable currency FlexUSD also began to unanchor, and the price fell as low as $0.23.

CEO Mark Lamb tweeted on June 29, explaining that the exchange liquidity crisis was caused by the arrears of "Bitcoin Jesus" Roger Ver, and claimed to have issued a default notice to Roger Ver, claiming 47 million USDC.

Later, Roger Ver posted a tweet in response: "Recently there have been rumors that I owed the debt to the other party. Return my funds."

Recently, we have learned the whole insider details through insiders.

CoinFLEX is a centralized derivatives exchange located in Seychelles. It has a serious fraudulent behavior. It has expanded the nominal trading volume to 24 times the actual volume through Repo.

After the liquidity crisis (before the news was made public), CoinFLEX officials explained to other partners that they opened a special account for Roger Ver. Usually, when the net value of the account is lower than the maintenance margin in contract trading, the exchange will directly liquidate the position. However, Roger Ver, as a high-net-worth customer, signed an agreement with CoinFLEX, using his personal reputation as a guarantee, requiring that when the net value of the account is lower than the maintenance margin, he will not be liquidated immediately, but should reserve enough time for him to call for margin.

Roger Ver opened a net long position on CoinFLEX, margined in BCH. It is reported that the price of these BCHs was about 400 US dollars at the beginning of the mortgage, and then the market price fell all the way, resulting in the net value of the account being lower than the maintenance margin. Roger Ver did not replenish the margin until the account was liquidated, and CoinFLEX did not sell BCH in the first place to liquidate the position. When the exchange faced a liquidity crisis and could not withdraw funds, and other users gradually learned about it, the price of BCH had dropped to $120.

If only this is the case, CoinFLEX's shortfall can be made up. However, before that, CoinFLEX issued its own platform stablecoin FlexUSD like other exchanges. At this time, CoinFLEX used FlexUSD to buy a large amount of FLEX from the secondary market, and opened a short order to hedge the spot price. However, the opponent of this part of the short position turned out to be Roger Ver!

This means that if Roger Ver defaults on the margin, the CoinFLEX position cannot be profitable, which is equivalent to holding a large net long position in FLEX spot. Therefore, when the withdrawal restriction announcement was issued, the total funds of CoinFLEX began to decline in a circular way:

• The price of FLEX falls, causing Roger Ver to increase his loss on the position.
• Roger Ver's losses increased, resulting in an increase in the margin owed.
• Delinquent margins increased, causing a liquidity squeeze on CoinFLEX.
• The liquidity crunch led to a further panic-like drop in FLEX prices.

In the end, Roger Ver's position was completely exhausted and turned into negative equity; while CoinFLEX held a bunch of FLEX that was returned to zero. According to statistics, the real loss of CoinFLEX reached 120 million US dollars, including the loss caused by the de-anchor of the stable currency FlexUSD, and the inability to withdraw money (less than 1000 million dollars) in losses.

Obviously, the 120 million cannot be entirely attributed to Roger Ver, at least the loss caused by the unanchoring of FlexUSD cannot be attributed to Roger Ver. Not only that, CoinFLEX's shorting of FLEX is a spontaneous behavior, and Roger Ver has provided liquidity for it, otherwise no one would be willing to be CoinFLEX's opponent. The loss ultimately attributable to Roger Ver is approximately $90 million, and could be more or less. These are one of the contradictions that the two protagonists cannot agree on.

People familiar with the matter then contacted Roger Ver to ask why. Roger Ver admits that he is in arrears with the security deposit, but currently does not have enough cash flow in hand, and he can consider using stocks (stocks of companies such as Blockchain.com Kraken) as collateral to replace the security deposit.

However, just as the two parties were negotiating, Mark Lamb made the matter public on CNBC, causing the negotiations to break down.

Today, the price of FlexUSD has dropped to less than $0.3, but this is on the premise that CoinFLEX did not liquidate Roger Ver's position. Considering this factor, FlexUSD still has a valuation discount (haircut) of about 70%-80%, which means that the actual price of FlexUSD is only about US$0.06.

The root of all this is not only Roger Ver's breach of contract, but also CoinFLEX's lack of risk awareness. Roger Ver has almost become the only counterparty of the exchange, and this only counterparty even has the privilege of not replenishing the margin in time. In today's situation, both parties are to blame, but it is CoinFLEX and other users on SmartBCH who are implicated for no reason.

To raise the missing $47 million, CoinFLEX announced the issuance of a token called Recovery Value USD (rvUSD). rvUSD holders can obtain 20% annualized interest rate, and this part of interest will be provided by Roger Ver's repayment funds and subsequent transaction fee income.

Despite the poor market environment, the exchange can make stable profits, as long as it does not use users' funds for other high-risk investments. Looking at all the closed exchanges in history, without exception, they misappropriated funds for other purposes, and even increased leverage on this basis. Therefore, even if Roger Ver is unable to repay the debt in the end, CoinFLEX can gradually make up for the shortfall by relying on transaction fee income alone.

It is not unprecedented for exchanges to issue debt tokens. In 2019, Bitfinex issued a debt token called LEO, raising $1 billion. Although LEO at that time did not promise to pay high interest to holders, fortunately, the total amount of rvUSD was only 47 million US dollars, which is why rvUSD attracted some traditional investment funds once it was issued. At present, the exchange has set KYC requirements for buyers, and only those with an annual income of more than 200,000 US dollars or assets of more than 1 million US dollars can purchase.