CoinFLEX Claims Blockchain.com Owes Over $4.3M in FLEX

Crypto exchange CoinFLEX is demanding that Blockchain.com return $4.3 million worth of FLEX coins or face legal proceedings, claiming it lent the Luxembourg-based financial services company a combined 3,000,000 FLEX coins last year, according to a demand notice obtained by Decrypt.

“This is completely false,” Blockchain.com told Decrypt in response. 

The Feb. 24 dated notice asserts that Blockchain.com has until March 7 to confirm it will repay the FLEX coins, and sets a deadline of March 21 for Blockchain.com to send the funds. Otherwise, CoinFLEX says the exchange will face “the commencement of legal proceedings, including but not limited to” a formal demand for payment called a statutory demand. 

From then, Blockchain.com would still have an additional 21 days to repay the funds, which consist of four loans allegedly issued between March and June of last year, according to the document.

“You have failed, refused, and/or neglected to repay the 3,000,000 FLEX coins that are long overdue to be repaid,” the letter to Blockchain.com states. “If our client is compelled to enforce its legal rights against you […] it will naturally look towards you for the maximum amount of interest and costs that is recoverable at law.”

The demand is based on an AMM+ (automated market maker) Participation Agreement allegedly entered into on April 12, 2022, when Bitcoin struggled at $40,000. Whether that agreement even exists is in dispute.

“CoinFLEX has provided no evidence, documentation, or on-chain data to support their claims,” the Blockchain.com statement read.

The letter sent to Blockchain.com was from a Singapore-based law firm called Nine Yards Chambers LLC, which confirmed to Decrypt that it sent the letter and that CoinFLEX is its client.

“CoinFLEX’s claim is completely meritless and a work of fiction from an insolvent company currently being sued by its customers for dissolution,” Blockchain.com said. “In fact, CoinFLEX owes Blockchain.com for services rendered which remain unpaid at this time, and we will soon initiate collection.”

CoinFLEX entered restructuring proceedings in a Seychelles court last August, where it seeks to raise $84 million to pay off its own debt. The exchange was cofounded in 2019 by Sudhu Arumugam and CEO Mark Lamb.

“We hope that common sense will prevail and that we will be repaid the FLEX we are owed,” Lamb told Decrypt.

Meanwhile, Blockchain.com faces its own financial challenges. The firm has been trying to sell some of its assets to patch a $270 million hole in its balance sheet, one stemming from cash and crypto that it lent to bankrupt hedge fund Three Arrows Capital (3AC), Decrypt previously reported.

The co-founders of 3AC Su Zhu and Kyle Davies have recently emerged as business partners to Arumugam and Lamb, who are all working together to establish a new venture called Open Exchange (OPNX).

A pitch deck that was leaked last month revealed the four were looking to raise $25 million to establish the company. It described Open Exchange as a hub for customers that want to trade bankruptcy claims—specifically those related to numerous crypto companies that collapsed last year like the exchange FTX.

The leak drew ire from some members of CoinFLEX’s official Telegram channel. “You don’t want to be associated with 3AC,” one user stated. “Think about this carefully.”

3AC was one of the largest crypto-centric hedge funds when it imploded last summer, filing for bankruptcy after it sustained heavy losses from the collapse of Terra’s UST stablecoin and governance token LUNA. 

Weeks after the pitch deck began circulating, OPNX was officially announced by Zhu, who stated FLEX coin will be the “primary token of the new exchange.”

FLEX coin was originally established as the native token for CoinFLEX, providing “users with exclusive benefits that [make] trading on CoinFLEX much better,” according to the exchange’s website, such as lower fees.

Though the coin has rallied around 180% to $1.46 over the past 30 days, FLEX remains roughly 80% down from its all-time high of $7.56 in December of 2021, according to CoinGecko, which also lists CoinFLEX as the only centralized exchange that still supports the token.

While this latest letter addressed to Blockchain.com was allegedly sent to the company privately, Lamb has publicly aired a dispute involving CoinFlex’s lending practices in the past.

A month after CoinFLEX froze withdrawals last May, citing “uncertainty involving a counterparty,” Lamb took to Twitter to claim that longtime Bitcoin evangelist Roger Ver owes CoinFLEX $47 million worth of the stablecoin USDC, adding a default notice had been served.

Ver denied the allegations that same day, stating he was the one that was owed “a substantial sum of money” and was undergoing steps to have the funds returned.

Lamb declined to comment about the state of his dispute with Ver. Ver did not immediately respond to Decrypt’s requests for comment.

As Ver and Lamb’s quarrel continued, CoinFLEX announced last July that customers would be able to withdraw some funds from the exchange but in a limited fashion. The withdrawals were restricted to 10% of users’ funds and excluded the platform’s stablecoin, flexUSD.