Finblox converts deposits to tokens to offset 3AC losses

Finblox covered losses from Three Arrows Capital with their money according to depositors.

Finblox converts deposits to tokens to offset 3AC losses

Vivek Patel woke up on March 27 to find himself $15,000 wealthier, but the reason behind it was initially unclear to him. According to Patel, Finblox, a crypto lending platform similar to the defunct Celsius, owed him the five-figure sum. Last year, he had deposited money into Finblox to take advantage of the high returns it promised on various cryptocurrencies such as Bitcoin, Ether, and Circle’s USDC stablecoin.

However, in June of the previous year, Finblox informed its customers that it needed to divert portions of their deposits into “reserve funds” and imposed restrictions on withdrawals. The explanation given was that Finblox had suffered significant losses due to the now-bankrupt trading firm Three Arrows Capital.

Patel and other customers were skeptical of this explanation, and their frustration only increased when Finblox converted their money into homegrown tokens called FBX in 2023.

Some customers, including Patel, voiced their complaints on social media, and to their surprise, one day $15,000 appeared in Patel’s account without any explanation. However, Patel suspected that the company was attempting to appease him and others like him in order to minimize protests and continue operating after the collapse of Three Arrows Capital, which left creditors owed $3.5 billion.

Finblox collapsed when Three Arrows Capital went down but continues to run like nothing happened while refusing to pay millions of dollars of debt.

Patel

Patel’s experience is not unique, as over 60 other customers who either lost money or had their debts converted to FBX tokens have joined forces to document Finblox’s activities online over the past year. They have accused the company of fraud, engaging in an illegal token offering, evading regulators by relocating jurisdictions, and running a Ponzi scheme by attempting to raise new funds through a token sale to repay previous depositors.

These customer protests resemble the outcry against Waves, a blockchain network that lost $530 million for investors due to a series of suspicious transactions. However, Finblox CEO Peter Hoang denies the allegations made by customers, stating that “none of the actions taken were intended to misguide the affected users.”

While Hoang did not disclose the exact amount of money the company lost in its dealings with Three Arrows Capital, he mentioned that the company has been taking measures to strengthen its operations and serve its customers. “We have been very respectful of everyone affected and always try to come up with solutions in their best interest,” Hoang claimed. He acknowledged that as a public-facing platform, there will always be a small percentage of unhappy users.

Nevertheless, several customers have a different perspective. DL News interviewed more than a dozen of them, and they allege that the firm confiscated approximately 50% of their deposits. One customer, who wished to remain anonymous, lamented, “Finblox has eaten up my life savings.

They’re refusing to return my funds that were deposited on their platform for less than a month.” These customers informed DL News that despite explicitly instructing Finblox not to convert their debt, it was still converted into FBX tokens. Meanwhile, the company continues to accept new deposits and seeks to raise funds through a token sale.

Although Patel was one of the fortunate few who managed to recover his money, he had initially believed that his funds were lost or, at best, recoverable only after a lengthy legal battle. Receiving his funds in full without any warning was both random and surprising for Patel.

However, a few days after he received and withdrew his funds, Finblox abruptly closed his account without any prior notice. As far as Patel knows, he and three others are the only ones who have fully recovered the money they deposited into Finblox.

Patel speculates that it is more convenient for the company if they are no longer users of the platform, allowing the company to claim that they are merely spreading fear, uncertainty, and doubt (FUD).

Finblox experienced significant growth in March 2022 after securing $4 million in a seed round with participation from Coinfund, Rebel Fund, and Sequoia Capital India, which also invested $150 million in FTX. Deposits on Finblox surged due to the support of prominent backers and the appealing yields it offered customers.

One of the main sources of yield generation for the company was lending out the crypto assets deposited by users to other players in the crypto space with minimal or no upfront collateral requirements.

However, in June of the same year, Finblox informed customers that the value of their deposited funds would be reduced and imposed a withdrawal limit of $1,500 per month. Six months later, the Securities and Futures Commission of Hong Kong added Finblox to its list of unauthorized collective investment schemes. (Finblox was initially based in Hong Kong before relocating to the British Virgin Islands in 2023).

The commission cautioned investors to exercise extreme caution when considering investments in non-SFC authorized schemes, as they may suffer significant or total losses.

A notice on the Finblox website now states that the company no longer provides services to residents of Hong Kong. William Green, another Finblox customer who successfully retrieved his deposits, believes that public complaints may have pressured Finblox into paying him.

“I was very vocal both on their support chat and their contact emails and on Twitter,” he revealed. “It seemed those who were the most vocal were paid.” Green also mentioned that the official Finblox Twitter account blocked him after he complained about not receiving his money back.

Other Finblox customers who spoke to DL News also claimed that Finblox banned them on Twitter and Discord when they requested the return of their funds.

In response, Hoang stated that the users who were paid were part of a “test buyback scheme.” He added, “We did a test buyback for some users who opted into the future buyback program, and we might do more buybacks in the future at our discretion as a company. It was not against our Terms of Use.”

Hoang also mentioned that he only blocked a few users who used offensive language and made public threats against the team. Finblox’s practice of converting debt into FBX tokens has left customers feeling confused and deeply aggrieved.

In September, Finblox informed depositors that their owed funds would be converted into FBX unless they explicitly filled out a form to opt-out. However, in February, the company reversed its stance and required the same users to opt-out of the conversion by filling out a different form. Consequently, customers who believed they had already opted out suddenly discovered that Finblox intended to convert their debt into FBX regardless of their wishes. Despite the protests from customers, Finblox did not change its position.

Even before distributing FBX tokens to customers, the company used legal loopholes in its terms of service to justify the conversion of their debt. An email sent to one customer and posted in the Finblox Recovery Efforts Telegram chat stated, “Absent the clear indication that you wish to opt-out from converting the reserved funds to FBX, submitted through the form, your reserved funds balance will be converted ex gratia into FBX tokens, in accordance with the agreement we have with you.” Other customers who spoke to DL News reported similar experiences.

According to the Finblox website, holding FBX tokens entitles customers to free withdrawals, reduced swap fees, and access to company’s AI application called AI-FinGPT. However, many customers did not wish to exchange their crypto deposit debt for Finblox’s token.

Dawid Maeser, a customer involved in ongoing legal proceedings against Finblox, stated that the platform converted his $87,000 deposit into FBX tokens without his consent. In February, he and three other Finblox customers filed a lawsuit against the company in Hong Kong.

Hoang contends that the majority of customers did not object to the conversion. He stated, “Most of the users were happy with the solution, and only a handful were not — as evidenced by a low number of complaints.” Hoang offered to provide contact information for users who were supportive but were suppressed and blocked by the same individuals speaking to DL News.

In February, the company introduced a buyback program for customers whose debt had been converted to FBX. Instead of waiting for their FBX tokens to unlock and selling them on the open market, customers had the option to sell them back to Finblox.

However, many customers questioned where Finblox would obtain the funds to repurchase the FBX tokens it had given them. Simultaneously, Finblox conducted an initial coin offering (ICO) for FBX tokens with a six-month lockup, preventing ICO participants from selling their tokens for six months.

J W, a customer participating in the buyback scheme, informed DL News that Finblox claimed it would allocate 30% of the net proceeds from the public token launch to the buyback. Several customers raised concerns that selling FBX to new investors through an ICO and using those funds to buy back tokens resembled a Ponzi scheme.

Patel expressed his reservations about participating in company’s Ponzi-like scheme to recover his funds when they launch the FBX token, as he believes it is unethical. Hoang refuted the comparison of company’s buyback program to a Ponzi scheme and stated that the funds from the FBX token sale would be used to expand the Finblox ecosystem.

However, he did not deny that some of the funds were being used to repurchase FBX tokens from customers. Since FBX began trading on May 12, its value has declined by over 70% and is now 50% below the price at which Finblox offered it through the ICO.

Many customers attribute this decline to Finblox selling FBX tokens to recover funds at the expense of new customers purchasing FBX through the ICO.

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