IEO

Amid NYAG scandal, Bitfinex plans to support IEOs via new platform

Quick Take

  • Bitfinex and its sister exchange Ethfinex launches an IEO platform, Tokinex
  • The team knew about the ongoing NYAG investigation of Bitfinex all along, but did not expect it to be revealed publicly
  • The NYAG-Bitfinex dispute may allow projects on Tokinex to receive more public attention and could turn out to be beneficial to their IEOs, according to Ethfinex co-founder Will Harborne

Bitfinex, along with its sister exchange Ethfinex, has opened a new venue for projects to raise capital amidst a dispute with NYAG.

The scandal-laden crypto exchange and its ERC20-focused sister firm Ethfinex announced today the launch of an initial exchange offering (IEO) platform, Tokinex.

The first token will be announced in a few days with approximately two or so more following each month, according to Ethfinex co-founder Will Harborne. Although Ethfinex is responsible for running the IEOs, users on both Bitfinex and Ethfinex can directly participate in the IEOs with existing accounts.

Ethfinex, a spin-off of Bitfinex, is an exchange specialized in trading ERC20 tokens. The two companies share the same leadership, with Bitfinex owning a major share of the smaller exchange. 

The IEO platform itself charges no listing fees, so the majority of the revenue will be coming from the maker-taker fees investors pay to the two exchanges when they trade these tokens after IEOs. Given that there is a lineup of tokens, with two to launch each month, and Bitfinex runs one of the largest client bases, Tokinex could potentially supply a steady stream of a revenue to the duo.

“We don’t have listing fees. Instead, we focus on the long term trading volumes,” said Harborne.

The news comes less than a month after Bitfinex was sued by the New York Attorney General for allegedly covering up an $850 million loss and failing to disclose all relevant documents. Parallel to Tokinex, Bitfinex also allegedly raised $1 billion in a private placement for its exchange token LEO in an attempt to fill the $850 million hole.

According to Harborne, his team was aware of the ongoing investigation by NYAG when planning for the IEO platform three to four months ago. However, they did not expect the investigation to blow up and make such a public scene, given that the U.S. law enforcement entities are pressing for heavy scrutiny over every crypto exchange and Bitfinex had been responsive to their requests, said Harborne.

With fewer connections in the U.S. compared to other venture-backed exchanges, Harborne believed that Bitfinex is just “an easier target given that we are not U.S. based and then have less support in the U.S..”

“Partly what is going on right now is the power play between various U.S. regulators over who has the real jurisdiction to go after [exchanges], particularly exchanges that don’t even operate in the U.S., and the New York AG would like to say that it was them,” said Harborne. “That’s what makes it a very public statement and go for Bitfinex. I think others (law enforcement agencies) are also making a similar move under the scenes. That’s understandable, but I don’t think it is just going to be Bitfinex.”

In a plot-twist, Harborne hoped that the media spotlight on Bitfinex, although not necessarily positive, may help the upcoming token sales gain more traction. To be sure, every company that has chosen to have its token listed on Bitfinex’s platform was aware of its ongoing legal controversies. 

“If we could choose, of course, we would hope that there were no such issues going on with Bitfinex,” said Harborne. “But at the end of the day if that’s what we have to deal with, then we are looking at using that for the moment.”

Despite controversies and public criticism, Harborne said that they decided to move forward with the IEO because a delay would stall the progress of other projects in the pipeline. However, he also stated that Tokinex will practice strict self-regulation and self-enforcement, especially during this time when they are under public scrutiny due to the NYAG lawsuit.

“We want to make sure we do good enough due diligence to know that the tokens that are available for customers are going to do well long term, and not going to scam,” said Harborne. “We have to acknowledge that, particularly for us, we are under huge scrutiny, very public scrutiny, and it is inevitable that any IEO we are running on the platform will also be looked at under that same light.”

A previous version of this article incorrectly said Bitfinex would conduct 80 IEOs. It plans to conduct two per month.