Bitfinex's owner, iFinex, announces the launch of a new token.
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This latest scheme is also “temporary.” So temporary, in fact, that some might question why Bitfinex needs to do it at all, since it doesn’t seem to be short of profits:, it earned $404m last year and paid out $261m in dividends. But as we shall see, there is a very good reason for Bitfinex’s owner, iFinex, to embark on this scheme. The U.S. authorities are on its case. It needs to make some changes – and quickly.
Both the trader and the investment fund need new capital. And although banks create money when they lend, they can’t create money to recapitalize themselves. They have to persuade someone to give or lend them the money. For the bank holding company, the obvious solution would be a rights issue, though it could also issue a form of debt that can be converted to equity: preference shares, for example, or “contingent convertible” bonds.
The plan is to create a new iFinex subsidiary for the sole purpose of issuing the new LEO tokens. LEO are to be bought with USDT, which you will recall is the token issued by Tether. Tether is owned by iFinex. So iFinex would not be raising any new money at all. It would simply be exchanging new lamps for old – on its own balance sheet. How could this recapitalize Bitfinex and Tether?
Tether’s loan to Bitfinex is currently collateralized by shares in DigFinex, which is iFinex’s ultimate owner. But because iFinex owns both Bitfinex and Tether, the “arms-length” loan is a fake and the self-collateralization is potentially fraudulent. And the NY AG knows this. iFinex needs to get rid of the loan in a hurry.
Ordinarily, if you swap secured for unsecured you have to do so at a discount, because unsecured is riskier than secured. iFinex isn't offering a discount on the token price, as far as we know, but traders who buy the coin will benefit from assorted discounts on trading services through iFinex’s exchanges, including Bitfinex. The question is whether these discounts will be sufficient to encourage traders to unload USDT and buy the new coin.
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