Troubled cryptocurrency exchange Bitfinex has published the whitepaper for its Initial Exchange Offering (IEO), confirming plans to raise up to $1 billion from the token issue. The exchange suggested it was planning a so-called IEO earlier this month, in a bid to plug a huge $850 million gap in its accounts.
Accused of misusing company money, parent company iFinex is currently subject to ongoing legal action, for using funds from its stablecoin, Tether (USDT), to fund the separate exchange business.
Authorities were prompted to investigate after it was revealed Bitfinex had lost $850 million in a deal gone wrong with an offshore bank, which saw the company dip into Tether reserves to meet the shortfall.
However, authorities in New York allege the company acted inappropriately in commingling funds, and that this undermined their repeated pledges to investors that USDT was a stablecoin backed 1:1 with reserves of U.S. dollars.
According to the whitepaper, the exchange will now issue securities as tokens, to be sold in a private round in exchange for tether USDT. The tokens can be used within the Bitfinex exchange, while providing much-needed access to capital for the exchange.
The whitepaper confirms the rumours emerging over the last few days in a largely unchanged state. The private sale is scheduled to run until May 11. The exchange hinted that if investor interest was muted, it would consider opening the tokens up to a public sale.
“If fewer than 1 billion USDT tokens are sold by private token sale, the Issuer may thereafter sell remaining tokens at times and in a manner it deems appropriate in its sole discretion, consistent with applicable law,” according to the whitepaper.
While the move comes at a critical time for Bitfinex, Tether and parent company iFinex, they are not alone in pursuing initial exchange offerings as a method of raising capital.
The model has become more popular with exchanges in recent months, yet it has already attracted criticism, with IEOs like Bgogo back in April being conducted with IOUs for third-party tokens, rather than the promised tokens themselves.
With Bitfinex in dire need of some good news, it remains to be seen whether the offer appeals to investors, and whether the exchange can pull off the capital it needs from the funding drive.
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