Top of mind for investors is: “What will happen to flexUSD holders after the conversion?”
Conversion, in this case, refers to our plan to convert depositors into holders of the CoinFLEX Composite, including rvUSD, FLEX, and equity in the company.
It is possible to mandate a conversion for all user balances on CoinFLEX. However, it is impossible to mandate that users of flexUSD on chain, outside the CoinFLEX platform, convert their flexUSD holdings into other tokens and equity. The reason is that they control the private keys and, in many cases, are not direct users of the platform. Separately, it’s useful for flexUSD to remain a tradable asset as it enables the CoinFLEX Composite to have a price. Some people may choose to sell flexUSD rather than redeem it, and others may choose to buy flexUSD to gain access to the Composite.
We would make flexUSD redeemable for the Composite at any time, rather than rushing users to convert within a specific window. flexUSD as an entity (flexUSD is a separate legal entity and as that entity, a customer of CoinFLEX) would be the cap table owner of the equity until flexUSD holders redeem it.
This also means that flexUSD should be worth the fair value of the underlying Composite. If someone sees flexUSD being sold (on DEXes or CoinFLEX) at prices lower than their perceived value of the Composite, they could buy flexUSD and redeem for the Composite, potentially to sell the sell-able parts or to hold it at that attractive entry price.
Holding flexUSD is also an alternative to redemption (for the underlying basket of assets) since a user who believes in CoinFLEX’s ability to recover assets or grow the company’s equity value can hold onto the token instead of redeeming it. The upside of holding flexUSD instead of the Composite is liquidity – users can trade flexUSD on CoinFLEX order books and DEXes. The downside of holding flexUSD compared to redeeming for the Composite is that the price appreciation potential is capped at $1.
Does this mean flexUSD could go back to $1 in the future?
Yes, it does. Suppose the value of the Composite appreciates enough. In that case, flexUSD can become worth $1 in the future as people would buy it to access the Composite parts that have appreciated to a value above $1.
What would happen if flexUSD becomes worth more than $1 in the future?
If flexUSD trades above $1 for an extended period, then CoinFLEX would re-enable flexUSD to be minted for 1 USDC while continuing to allow redemptions converted into the Composite. Post the re-opening of flexUSD minting, if there were no more rvUSD, shares, and FLEX Coins Composite available for redemptions, flexUSD would be redeemable for 1 USDC once again.
Examples (for illustration purposes only):
Suppose flexUSD has been trading above $1 at a price of $1.05 – $1.25 for the last 2 weeks, with an average price of $1.11. At this point, CoinFLEX opens up flexUSD minting 1:1 for USDC. Redemptions will still be converted into the Composite.
Alice mints 1,000 units of flexUSD for 1 USDC each. She then sells them at an average price of $1.11, making an 11% profit on her 1,000 USDC investment.
Bob mints 10,000 flexUSD with 10,000 USDC to redeem flexUSD for the Composite. He decides to sell the rvUSD and FLEX Coin and hold onto the shares for the long term.
At some point, enough people do what Bob does such that flexUSD’s holdings of rvUSD, FLEX, and shares become entirely depleted. Now flexUSD is backed by USDC, which is also being deployed into repo to earn interest from perpetual futures funding in the same manner as before.
After the above has happened, flexUSD will be redeemable once again 1:1 for USDC. Carol mints $100k worth of flexUSD. When she redeems flexUSD for USDC, her balance is 100,042 USDC. The 42 USDC is earned through interest payments from repo funding in the same manner as before.
When would flexUSD start paying interest once again?
Once flexUSD becomes mintable again, the USDC used as collateral would be deployed to CoinFLEX repo and start accruing interest to the flexUSD account. However, CoinFLEX would not pay out that interest to holders until all Composite assets are redeemed. Note the number of redeemable Composite assets is limited and does not compound/grow. In this case, flexUSD’s account at CoinFLEX would retain the accrued interest until it has disposed (via redemptions) of all the Composite assets. After Composite assets are fully redeemed, CoinFLEX would payout all accrued flexUSD interest over 30 days in 8-hour interest payment periods, which users would receive in addition to the regular 8-hourly interest payments.
Will this work differently for CoinFLEX.US vs CoinFLEX.com?
Yes. flexUSD will be redeemable on CoinFLEX.US, for the Composite for a limited time (such as several weeks) following the Seychelles government-mandated solution voted upon by depositors. After that, CoinFLEX.US users will continue to be able to trade (into USD) or withdraw flexUSD. flexUSD on CoinFLEX.com will be redeemable for the Composite until flexUSD runs out of Composite assets as described above, in the example of flexUSD going above $1.
The above statements are projections based on CoinFLEX’s understanding of the agreement likely to be approved by 75% of depositors as part of CoinFLEX’s restructuring process in Seychelles. Any change in the outcome of that process could change the above projections and guidance, so these statements should not be treated as final and definitive.