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Bitfinex, the world’s largest exchange by trade volume, claims it is using an undisclosed portion of the "revenue" generated from a token sale run on its platform to pay back the $850 million debt it owes to its sister company, Tether.
The exchange “borrowed” the $850 million from Tether’s reserves last year when the exchange’s shady payment processor, Crypto Capital, had its funds seized by several foreign governments.
In an attempt to make both companies whole, Bitfinex ran a token sale of the cryptocurrency LEO to cover the losses, reportedly selling $1 billion in total. The LEO functions as a debt instrument; Bitfinex raises money by selling the token to investors, and supposedly pays them back using money gained via other streams of revenue.
Bitfinex claims to have so far paid Tether back $100 million as a result of the LEO sale, and says it is already buying the tokens back from investors. To pay them back, it says it has used 27 percent of the revenue generated from another token sale, run by a crypto startup called Ampleforth on Bitfinex's proprietary “Tokinex” platform, which raised $5 million in 11 seconds last month.
Nevertheless, Bitfinex won’t say how much money is actually involved, nor how the “revenue” was even generated. When asked, Bitfinex spokesperson Kaspar Rasmussen said that revealing this information would “impact future IEOs on our platform.”
But there are some clues. A source familiar with Tokinex, Bitfinex’s proprietary token launch platform, said that Ampleforth did not have to pay Bitfinex upfront for the token listing, but did incur a "success fee" for its successful raise, worth an undisclosed "percentage of the amount raised." Bitfinex also takes trading fees.
It's possible to get some sense of this revenue by looking at the LEO burns on the Bitfinex "transparency page" and extrapolating backwards. $38,000 worth of LEO will supposedly soon be burned. If the amount of LEO burned is 27 percent of the revenue generated, that suggests a revenue of around $150,000 from the Ampleforth token sale. We don’t know if this is the full amount, but it’s probably not far off, given the AMPL token’s trivially small daily trading volume. (AMPL's 24 hour trading volume is around $220,000. If Bitfinex extracted its standard 0.1 percent of the fees from that for fifteen days, it would yield around $33,000.)
Chances are, there are also a lot of hidden costs and undisclosed transactions involved in the repayment. And it might just be that Bitfinex is dissembling as it awaits further response from state authorities over its failure to disclose its insolvency to investors last year. Even with a so-called transparency page, Bitfinex remains opaque.
Note: This article originally that Bitfinex had sold $1.6 billion LEO tokens. It had, in fact, sold $1 billion.