LEO, a token issued by Bitfinex’s parent company, iFinex, was revealed to have a major liquidity problem. Bitfinex order books revealed that $500,000 buy and sell orders swung LEO’s price by 25 percent.
Bitfinex’s cop-out plan
Launched earlier this year, LEO token was issued by iFinex Inc., Bitfinex and Tether‘s parent company based in the British Virgin Islands. The company used LEO to raise funds to cover the $850 million loss it encountered when the funds it sent to a Panamanian payment processor were seized by authorities.
Facing accusations of bank fraud, Bitfinex‘s plan to hold an initial exchange offering (IEO) was supposed to alleviate the company from the financial burden it was facing. Paolo Ardoino, the CTO of Tether and Bitfinex, said that the company was able to raise $1 billion USDT in 10 days in a private sale of LEO.
. @bitfinex is able to raise 1b USDt in 10 days, in a private sale. Private companies, giants in our industry and outside, made investments for > 100m each. A legion of inside and outside users made investments for > 1m each.
— Paolo Ardoino (@paoloardoino) May 13, 2019
What made LEO attractive to investors was Bitfinex’s continuous burn mechanism – the company said it would dedicate at least 27 percent of its revenue and the revenue of its subsidiaries to buy back the LEO tokens it sold. Gross revenues from iFinex will be allocated toward the purchase of LEO tokens at market rates until 100 percent of the tokens have been burned, the company said.
However, despite the company’s transparency initiative, many have questioned iFinex’s intentions with LEO. While some saw this as a chance to turn over a quick profit in the buy-back, others have advocated for using the token as a long-term asset.
No liquidity in LEO
Su Zhu, the CEO of Three Arrows Capital, pointed out on Twitter that LEO was a relatively illiquid market. The observation followed a lengthy discussion about the massive outflow of Bitcoin from Bitmex. Some Twitter users argued that the $73 million worth of Bitcoin leaving one of the world’s largest exchanges was used to pump the price of certain altcoins.
Many fingers were pointed at LEO, which saw major price fluctuations in the past couple of days. iFinex was quickly accused of using LEO, which was devised as a cop-out plan, as a smart money dumping platform where bigtime traders could turn a big profit.
However, Zhu said that it was most likely not the case with LEO. He pointed out that LEO was an illiquid market, where $500,000 buy and sell orders have the potential to swing its price up and down by 25 percent. Buy orders as large as $3 million have previously doubled LEO’s price to $2.00. A $3 million sell order, on the other hand, had sent its price down to $0.93.
Guys, $LEO is a relatively illiquid market where a $500k buys sends it to over $1.50 and a $500k sell sends it to $1.12. A $3mill buy sends it to $2.00 and a $3mill sell sends it to 0.93.
It's a long-term asset. There's no "smart money dumping." pic.twitter.com/xYptFD2bGt
— Su Zhu (@zhusu) July 20, 2019
All of this, Zhu said, points to the fact that LEO is a long-term asset.
Zhu said that LEO has the potential to outperform Bitcoin if Bitfinex was to maintain or increase its market share.
I don't think it's an either/or. It can outperform if Bitfinex maintains or increases market share. The burn rate is in BTC notional bc volumes x fees = revenues, so leousd fair value goes up linearly with btcusd going up.
— Su Zhu (@zhusu) July 20, 2019
However, not everyone seemed to agree with him, with many saying that LEO’s very definition makes it hard to put it in the same basket as Bitcoin. While Zhu said LEO fell into the category of preferred shares, others insisted that LEO’s price/volume action makes it closest to a coupon bond.
Let me respectfully disagree, technically it is not a Bond neither is Preferred Shares or royalties, as holders are entitled to nada. It is a peculiar combination of various instruments. Very risk prone to my point, and the price/volume action « looks like » a 🙄 coupon bond. pic.twitter.com/DaCQUrcaLH
— davidegallo (@davidegallo) July 20, 2019
The intense discussions led about the future of the token seem to have affected LEO’s price, which dropped from $1.99 in the second half of June to just $1.30 in the second half of July. However, LEO looks like it’s on its way to recovering at least some of its losses, as its price has been going upwards in the past couple of days.Posted In: Bitfinex, Altcoins, Analysis