As it struggles with a surge of withdrawals following the demise of FTX, the lending division of cryptocurrency brokerage Genesis has suspended redemptions and new loan originations. Genesis claims the “abnormal withdrawal demands” have exceeded its “current liquidity” in a tweet.
The third-largest cryptocurrency exchange by volume, FTX, filed for bankruptcy last week, sending shockwaves across the industry as investors withdrew their money from other exchanges out of concern that they may meet the same fate. Genesis, which stated last week that it has $175 million tied up in FTX, was also affected by this wave of withdrawals.
The default of 3AC negatively impacted the liquidity and duration profiles of our lending entity Genesis Global Capital. Since then, we have been de-risking the book and shoring up our liquidity profile and the quality of our collateral.
— Genesis (@GenesisTrading) November 16, 2022
The venture capital firm Digital Currency Group (DCG), which also owns Genesis, Grayscale Investments, and the cryptocurrency news site CoinDesk, gave the brokerage a $140 million equity injection to help it survive the collapse. In addition, DCG stepped in to support Genesis after the collapse of the cryptocurrency hedge fund Three Arrows Capital (3AC) in July and took on the debt for the $1.2 billion lawsuit Genesis had brought against the now-defunct company. The suspension of withdrawals by Genesis “has no impact on the business operations of DCG and our other fully owned companies,” according to DCG.
According to Genesis’ most recent quarterly reports, active loans have decreased by 80% from the second quarter to the third, going from $4.9 billion to barely $2.8 billion. Following the failure of 3AC, Genesis also made 20% of its workforce redundant and appointed COO Derar Islim in lieu of former CEO Michael Moro. Genesis continues by stating that it won’t have an impact on its trading or custody businesses and that it will publish a “strategy for the loan business” the following week.
However, the word has already begun to spread throughout the bitcoin sector. The Tyler and Cameron Winklevoss-owned cryptocurrency exchange Gemini said that it is halting withdrawals from its Earn program, which partners with Genesis for lending. The USDC stablecoin’s issuer Circle, which collaborates with Genesis to offer USDC-based credit to businesses and retailers, is also impacted. Blockworks noted that Circle’s annual percentage yield (APY), which was 0.25 percent on Tuesday, dropped to zero.
In the meantime, some cryptocurrency exchanges are attempting to allay investor concerns by disclosing proof of reserves, such as Binance and Crypto.com. While Binance CEO Changpeng “CZ” Zhao states that the company “does not rely on Genesis or any other 3rd-party for our Earn goods,” Crypto.com CEO Kris Marszalek asserts that the exchange “has zero exposure to Genesis and Gemini Earn.”
