CoinFLEX Restructuring Proposal and Next Steps

Dear CoinFLEX Community,

We have been eager to release a detailed update for a while. We have heard your concerns and frustrations, and thank you for your continued patience. As mentioned and hinted at in many of the Telegram community conversations, we have not been able to comment publicly due to the ongoing discussions between the different stakeholders.

Today, we can finally announce that all major stakeholders involved in the process of the reorganization of CoinFLEX have come together on terms that are agreeable to the negotiating parties. We want to share the terms with all creditors before the official vote, and explain the various parties’ roles in the new CoinFLEX (Company) once the creditors approve.

The term sheet and documents that will be circulated as part of this update offer the most comprehensive details, but we also wanted to run through the high-level terms of the agreement, along with our personal views, in case that helps your decision-making.

As with any reorganization, unfortunately, most shareholders get wiped out. This situation is no different; with all existing Ordinary and Series A shareholders of the Company losing their equity stakes, including us. You will see as you read further that the Series B shareholders will continue to be shareholders and the reasons behind that decision.

Term Sheet and Exhibits

Resolution and Scheme of Arrangement

Creditors

You are all creditors, and every vote matters, however big or small. We have, from an early stage, been in discussions with what we have been calling the “large creditor group” and who are referred to in the term sheet as the “Ad Hoc group.” This group of creditors represents a significant proportion of the creditors by value and has been helpful in making sure that an agreement was reached in the interest of all stakeholders. We thank them for their hard work and professionalism these past few months.

Creditors will own 65% of the Company, and we are excited about our new shareholders and the support they bring.

CoinFLEX Team

The team will be allocated 15% in the form of an employee share option plan (ESOP) which will vest over time. It is important that the team gets CoinFLEX back on track and grows the business with all your support.

Series B

Prior to the liquidity issues with the platform emerged, a group of investors (Series B) invested in CoinFLEX. Both the Company and the Ad Hoc group acknowledge the added value that this group of investors will bring to CoinFLEX both in the near term and in the future.

As such, the Series B investors will continue to be shareholders in the reorganized business. They are also incentivized with future equity, which will be earned through value brought to the business, benefitting all shareholders. We are excited to have this well-networked group to help grow CoinFLEX.

SmartBCH

CoinFLEX is happy to have reached an agreement on a structure with the SmartBCH Alliance, which would allow for the continued success of the SmartBCH project.

The effect of the agreement with the SmartBCH Alliance is that, subject to approval of CoinFLEX’s reorganization in the Seychelles, the SmartBCH Alliance will assume the responsibility of the SmartBCH Bridge and use its own BCH to exchange the sBCH Tokens held by the DeFi SmartBCH users on a 1:1 basis.

Thus, the SmartBCH Alliance will take over as a creditor of the Company for the amount of the BCH that it expends on performing these obligations. The Alliance will be treated like any other creditor with no change in the position of any of the other current creditors.

This means that (subject to the approval of CoinFLEX’s reorganization in Seychelles) BCH on the SmartBCH network will be 1:1 redeemable for BCH via the SmartBCH Alliance.

We thank the Alliance for all their hard work in getting this agreement in place and the continued role they will play at CoinFLEX as Board members. The agreement with the Alliance will be circulated as part of the supporting documentation.

Composite Assets

We have indicated in the past that creditors will be getting recovery tokens (rvUSD), equity, and FLEX Coin, but you will see that the proposed Term Sheet only includes rvUSD, equity, and USDC.

The reason for this change is that the Company holds significant FLEX Coin holdings on its balance sheet. New shareholders will benefit from those holdings as we may use these tokens for marketing and other incentives to grow the business or keep them on the balance sheet, benefiting all shareholders. This decision was made by both Series B investors and the Ad Hoc Group. They believed that the creditors would have a better outcome with FLEX owned by the Company rather than distributed out.

New Board of CoinFLEX

The new board of CoinFLEX will represent all the new groups of stakeholders, and the diversity that this brings is positive. The additions to the board are:

  • Platform Depositor
  • SmartBCH Representative
  • Series B Investor
  • Independent Director

 

What Happens Next?

Voting

There will be many different views on this reorganization, and we expect a lot of feedback on this in the various community chats. The term sheet and documents available at this stage will be made available on Commonwealth, our primary governance forum, and Snapshot where the official token voting will take place using CoinFLEX vote tokens (CFV). Starting Thursday, September 22, the information will also be available on our new Investor Portal.

Please note that for the CoinFLEX vote tokens (CFV), we will use a crypto price taken on 10:00 AM UTC Thursday, September 22, 2022 to calculate the dollar value of everyone’s locked balances. We will issue these tokens to everyone’s accounts at CoinFLEX whose assets have been locked. We will also issue the vote token to anyone holding BCH on the SmartBCH network. Holding flexUSD on either the Ethereum or SmartBCH network will also enable you to vote.

The team will release a separate blog explaining how the voting will work and what steps you need to take to be ready to vote. Please look at that document carefully.

Results

Suppose there are sufficient votes to pass, meaning 75% of creditors by value who vote are in the affirmative. In that case, we will take that vote, along with the term sheet and supporting documents, and present it to the Seychelles Courts to approve the reorganization.

Suppose the vote does not pass, meaning 75% of creditors by value who vote do not do so in the affirmative. In that case, the stakeholders will have to rework the terms and then come back to all creditors for another round of voting to seek approval.

Seychelles Court

Assuming that the creditors approve the reorganization plan and the judge is satisfied by the process and the terms reached, we will begin the process of coming out of reorganization. If everything is in order, we expect this process to take up to 6 weeks; however, this is just an estimate. We aim to ensure this process is carried out as fast as possible.

We fully recognize that this has been a traumatic experience for all our depositors and stakeholders. We hope that with a successful reorganization, we will return to the path of growing and becoming a successful exchange. It will not be overnight, nor easy, but with the support of our new army of shareholders – you guys – we have every chance of achieving that goal.

We have also been busy building in the background these last few months, and are excited to share some news on this front. We will be announcing some of these updates in more detail shortly, including:

  • Investor Portal: Dedicated portal for investors (shareholders and token holders) to view available financial data and access proposals forward by the community for feedback and voting.
  • Permissionless Listing: The first permissionless perpetual futures token listing. Similar to how anyone can create a token liquidity pool on a DEX, soon anyone can create a token perp listing on CoinFLEX without the friction or gatekeeping typical of a CEX.

We understand that you likely have many questions and would like to direct you to our Commonwealth where we can address your concerns. The team will be moderating the “#Support” chat for all questions regarding this Restructuring Proposal. We will be doing one or more video AMAs where we hope to address as many of the public’s questions as possible.

Please stay tuned, and thank you again for your support.

Mark Lamb & Sudhu Arumugam


Key dates

Vote Token Transfer Period: 12 PM UTC on Thursday, September 22, 2022 to 8 AM UTC on Sunday, September 25, 2022

Official Snapshot Voting Period: 8 AM UTC on Sunday, September 25, 2022 to 4 AM UTC on Tuesday, September 27, 2022

Wednesday, September 21

  • Term Sheet and Reorganization documents are made available on Commonwealth

Thursday, September 22

  • CoinFLEX Investor Portal launches
  • Asset pricing snapshot taken for CoinFLEX deposit balances at 10 AM UTC
  • Vote tokens are issued to creditors starting 12 PM UTC

Sunday, September 25

  • Official Snapshot voting begins at 8 AM UTC (users must have withdrawn CFV tokens from CoinFLEX to their wallet prior to this snapshot)

Tuesday, September 27

  • Official Snapshot voting closes at 4 AM UTC

 

Update [Sunday 25 September 2022]:

Following feedback from creditors and stakeholders, there was some confusion concerning the approval requirements as detailed in the Term Sheet compared to our blog post.

We have always advised in our communications that approval of the Scheme of Arrangement requires 75% of creditors by value who vote in the affirmative. We have updated the Term Sheet and Scheme of Arrangement/Resolution documents to reflect this and to avoid confusion. There have also been some queries from the SmartBCH Community concerning certain aspects of our agreement with the SmartBCH Alliance – namely, the SmartBCH Tokens that CoinFLEX holds.

We have agreed on certain amendments concerning our agreement with the SmartBCH Alliance addressing these queries, which have now also been reflected in Exhibit A of the Term Sheet. We have also clarified that the SmartBCH Alliance will receive a 10% distribution of their claim amount (like other creditors have to date) once their agreement is binding.

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