Bitfinex issues details for $1 billion token sale; exchange plans to use money to cover frozen funds

Quick Take

  • Bitfinex is conducting a $1 billion IEO, according to the Bitfinex IEO white paper details posted by the company’s shareholder Zhao Dong
  • The exchange tokens are issued to provide liquidity to the company, as $850 million of its funds are currently frozen by the authorities in Poland, the U.S., and Portugal
  • The IEO allocations are currently available to private investors, and will be open to the public after May 10 if allocations remain

Crypto exchange Bitfinex will conduct an initial exchange offering (IEO), aiming to raise $1 billion, according to details from an upcoming white paper reviewed by The Block. The final version of the white paper is still under review.

Bitfinex’s exchange tokens, dubbed LEO, would first be offered to private investors, then subsequently opened to the public after May 10 if there is any allocation left, according to the information shared by shareholder Zhao Dong. According to Zhao Dong, Bitfinex has already raised $600 million in private, verbal commitments. Since last week, it has been rumored that Bitfinex would raise money via an IEO, a red-hot fundraising mechanism that allows crypto firms to sell tokens on an exchange to raise cash.

As per the white paper details, the firm says it is issuing the exchange tokens to cover the $850 million currently frozen in several accounts controlled by the payment processing company Crypto Capital. A week ago, the New York Attorney General (NYAG) sued Bitfinex and Tether for allegedly commingling funds to cover the loss of that $850 million.

In documents described as “information from the white paper,” Bitfinex says it is “actively collaborating with the legal investigation and applying to unfreeze these funds through legal procedures.” The company is “confident that it will retrieve these funds,” according to the white paper details.

As for the specifics about the new tokens, they will be bought back on a monthly basis at market price, with at least 27% of Bifinex’s profit from the previous month — akin to stock buybacks on Wall Street. Notably, Bitfinex also reserves the right to buy back the tokens within 18 months after its funds are unfrozen.

In fact, at least 95% of the unfrozen funds will be used to redeem and burn the LEO in an equivalent amount. Zhao Dong said that even if the seized money cannot be retrieved, according to the projections from Bitfinex’s profits in 2017 and 2018, the company should be able to buy back all of the tokens within 4 years.

If Bitfinex were to retrieve a portion of the hacked 119,756 bitcoins (~$72 million at the time) from 2016, at least 80% of it would be used to buy back and burn the tokens. Market observers, however, tell The Block this would be nearly impossible.

Like other exchange tokens, such as Binance’s BNB, LEO will also offer discounts on trading fees. In addition, LEO holders will have access to a 15% discount of taker fees for crypto-to-crypto trading, discounted lending rate, and discounted withdrawal fees.

Bitfinex’s profit in 2018 was $404 million, and it paid out a dividend of around $261 million.

Update: This article has been updated to clarify that the information contained within this report was pulled from documents related to Bitfinex’s white paper, not the official white paper itself.