An independent arbitrator in Singapore has ordered embattled crypto mining software firm Poolin to return 88 bitcoins (BTC), worth about $1.5 million at recent prices, to a customer whose withdrawals were halted and crypto turned into I-owe-you (IOU) tokens.
Poolin Wallet said on Sept. 5 in a Medium blog post that it was experiencing a liquidity crunch, meaning it didn’t have assets immediately available that customers could withdraw. The firm thus officially paused withdrawals in early September and told customers that their funds would be converted to IOU tokens, which could be converted back to crypto quarterly.
But, on Tuesday, Poolin CEO Kevin Pan told CoinDesk that the IOU payouts haven't been issued yet because the company’s cash flow is “still low.”
Li Bei, the claimant in the Singapore case, said in an arbitration filing that the move broke Poolin’s obligations according to its terms of service – and managed to find justice in arbitration.
David Kreider, the arbitrator, ruled in October that Poolin had to return some of the user’s funds immediately, though the order still needs to be approved by an arbitration tribunal, according to the document, which CoinDesk reviewed.
Pan confirmed the arbitration order to CoinDesk via Telegram in December. “We’re working on it [paying the user back],” he said. The CEO expects his firm will be able to pay Li during the first half of this year, depending on Poolin's cash flow and the market. The arbitrator said Poolin should pay soon.
In August, just before the turbulence was made public, Poolin’s mining pool had about 10% of the hashrate – a measure of computing power – of the entire Bitcoin network, data from BTC.com’s website shows. Its share is now 2.63%.
Poolin has distributed at least another $238 million of such IOUs, according to Nansen analyst Andrew Thurman and independent journalist Colin Wu. Holders of those tokens could in theory claim that Poolin didn’t fulfill its obligations as a service provider, exacerbating the firm’s existing problems.
In early December, Poolin said that some balances would be paid out later in the month. But angry customers who have yet to see any funds have accumulated in the company’s Telegram support channels, with some saying they should “hunt” the “thieving” CEO. Pan didn’t respond to CoinDesk’s request for comment on that.
The company has said it expects to pay out all balances in one to two years, as only 10%-20% of each account balance will be paid out per quarter.
On Dec. 22, Poolin said that it was terminating its Mars Project, a hashrate token project that received investment from now-bankrupt Singapore hedge fund Three Arrows Capital, to focus on IOU tokens.
The arbitration case
Li had 101,236.83 USD coin (USDC), 101,985.20604947 tether (USDT) and 88.15571 BTC in Poolin’s Wallet service on July 15, according to the emergency arbitration document seen by CoinDesk. He was unable to withdraw the tokens on that day when he tried.
On Sept. 13, Poolin announced it would be converting all users’ balance to IOUs in order to deal with its liquidity issues. The IOUs could be traded for other cryptocurrencies every quarter on a 1-to-1 basis or swapped for Poolin services.
The firm had originally said on Sept. 13: “In practice, PoolinWallet will offer IOU-token to token single-direction swap in the Trade function, allowing users to trade their IOUBTC to BTC, IOUETH to ETH, IOUUSDT to either USDT or USDC, IOULTC to LTC, IOUZEC to ZEC, IOUDoge to Doge, quarterly. Also, PoolinWallet is likely to increase the frequency and amount of redeem as long as the liquidity becomes available, meanwhile, users could withdraw their IOU tokens and trade on chain or even with third parties (if available) freely.”
On Sept. 19, Li found that, without his approval, his tokens were changed to equivalent IOUs of each cryptocurrency.
Not only was that a violation of the terms of service, but the IOU tokens have virtually no value, because they cannot be traded on exchanges and their price is not tracked by information platforms like CoinMarketCap, Li argued. He said he was stonewalled by Poolin CEO Pan when he tried to get answers.
Poolin has said that IOUs can be exchanged for mining machines. But according to Li, the ones the firm was offering were immersion or hydro-cooled, a technology that is not friendly to home miners. The mining firm was also offering Poolin equity in exchange for IOUs, but that isn't "worth much," Li said.
Separation of companies
On top of that, during the arbitration procedure, Poolin tried to tamper with evidence to throw out the case, according to the arbitration document. The software firm argued that Singapore was the wrong jurisdiction, because the terms of service aren't issued by its local entity, Poolin Technology Pte. The name of the local entity disappeared from Poolin Wallet’s website and app sometime between Sept. 19 and 24, Li said.
Screenshots from the Poolin Wallet website. On Sept. 5, pictured at the bottom, the name of the Singaporean entity Poolin Technology PTE Ltd. is visible, whereas on Dec. 12, it has disappeared, pictured at the top. (CoinDesk/Eliza Gkritsi)
While Kreider didn’t rule on the issue of evidence tampering, he seemed to throw his weight behind the allegation, saying that the evidence warrants an emergency order.
Joshua Vazquez, a user who transferred funds from the pool balance to the wallet once it became impossible to do anything else with them on Sept. 13 – the date Poolin announced the IOU plan – said he was deleted from Poolin’s Telegram group for asking questions.
“The Poolin community admins refuse to respond to any questions remotely related to their interactions with Poolin Wallet, and further claim that they are separate entities,” Vazquez told CoinDesk.
Pan didn't respond to a request for comment on the allegations of evidence tampering or Vazquez's claims.