After announcing that it had suffered a breach, Patricia, a Nigerian crypto exchange, halted withdrawals and deposits on its platform in April 2023.

Then, on August 18th, it announced a repayment plan: the launch of Patricia tokens (PTK). The company said it was converting all outstanding naira and Bitcoin (BTC) to these tokens, holding their value at $1=$PTK. But the public’s response has been anything but optimistic. No one knew what backed the tokens or why Patricia converted people’s balances without consent. And so everyone, especially the affected customers, needed more concrete details.

Patricia responded by publishing the whitepaper for this token. The document shows how the exchange plans to use these tokens to regain stability as a company and repay its customers. But not every detail in this whitepaper is mind-settling. Here are some highlights.

  • The Patricia token is a “debt token” that replaces the assets lost to the hack. Essentially, it means Patricia owes you money.
  • Customers would get PTK tokens if they lost BTC or naira in the hack. But they can only use them when the new Patricia app, called the Patricia Plus App, comes out.
  • You can use PTK to get USDT and then change USDT to other currencies like BTC or naira. But the exchange rates depend on how much these were worth in US dollars on April 29th, 2023.
  • The company did not specify the token’s vesting schedule (vesting means the lockup period when investors/holders cannot trade or transact their assets).
  • A smart contract will lock the tokens and gradually release them monthly. But there’s a caveat:
  • Customers will only get their money back if Patricia is profitable.

Patricia is following the steps of Bitfinex, the first crypto exchange to use debt tokens to regain stability successfully. Bitfinex lost 119,756 bitcoins ($72 million) in 2016 but used debt tokens to repay their customers over 11 months. Patrica reportedly lost $2 million to the hack and hopes debt tokens will do the same magic.

However, debt tokens are not a magic wand, especially in the Nigerian context. Nigeria is already a low-trust environment, which explains the mass scepticism around Patricia’s approach. Patricia needs to be profitable to pay its customers. But there’s no way for the customers to know when that happens. Since Patricia doesn’t rely on retail investors, it doesn’t publish its financials for the public. Will that change now? No one knows. Also, the caveat that they need to be profitable to repay customers means that these customers are now (technically) investors. Creditors don’t need your profit to recoup their money, investors do. And so Patricia will need plenty of work to revive the public’s trust, even after repaying everyone.

Tangerine

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