Crypto lending unit of Genesis files for US bankruptcy as crisis deepens

Genesis Global Capital, one of the largest crypto lenders, filed for bankruptcy protection. PHOTO: REUTERS

WILMINGTON, Delaware - The lending unit of crypto company Genesis on Thursday filed for US bankruptcy protection from creditors, toppled by a market rout along with the likes of exchange FTX and lender BlockFi.

Genesis Global Capital, one of the largest crypto lenders, froze customer redemptions on Nov 16, 2022, after FTX stunned the financial world with its bankruptcy, fuelling concern that other companies could implode. The company is owned by venture capital firm Digital Currency Group (DCG).

Genesis’ lending unit said it had both assets and liabilities in the range of US$1 billion (S$1.32 billion) to US$10 billion, and estimated it had more than 100,000 creditors in its filings with the United States Bankruptcy Court for the Southern District of New York.

Genesis Global Holdco, the parent group of Genesis Global Capital, also filed for bankruptcy protection, along with another lending unit, Genesis Asia Pacific.

Genesis Global Holdco said in a statement that it would contemplate a potential sale or an equitisation transaction to pay creditors, and that it had US$150 million in cash to support the restructuring. It said Genesis’ derivatives and spot trading, broker dealer and custody businesses were not part of the bankruptcy process, and continue their client trading operations.

Genesis’ bankruptcy filing is the latest in a cascade of crypto failures and steep job cuts triggered by plunging prices in 2022.

Genesis was already locked in a dispute with Gemini Trust, founded by cryptocurrency pioneers Cameron and Tyler Winklevoss. The two firms are fighting over a crypto lending product called Earn that they jointly offered.

The Winklevoss twins famously sued Facebook founder Mark Zuckerberg, claiming he stole their idea to create the social network.

They have said Genesis owed more than US$900 million to about 340,000 Earn investors.

On Jan 10, Mr Cameron Winklevoss called for the removal of Mr Barry Silbert as chief executive officer of DCG. About an hour after the bankruptcy filing, he tweeted that Mr Silbert and DCG continued to deny creditors a fair deal. He said: “Unless Barry (Silbert) and DCG come to their senses and make a fair offer to creditors, we will be filing a lawsuit against Barry and DCG imminently.”

Genesis and Gemini were charged by the US Securities and Exchange Commission on Jan 12 with illegally selling securities to investors through the Earn programme.

Genesis brokered digital assets for financial institutions like hedge funds and asset managers and had almost US$3 billion in total active loans at the end of the third quarter, down from US$11.1 billion a year earlier, according to its website.

In 2022, Genesis extended US$130.6 billion in crypto loans and traded US$116.5 billion in assets, according to its website.

Its two biggest borrowers were Three Arrows Capital, a Singapore-based crypto hedge fund, and Alameda Research, a trading company closely affiliated with FTX, a source told Reuters. Both are in bankruptcy proceedings.

DCG’s portfolio companies also include crypto asset manager Grayscale and news service CoinDesk. It raised US$700 million in November 2021 from prominent investors, including Singapore sovereign wealth fund GIC.

Crypto lenders, which acted as de facto banks, boomed during the Covid-19 pandemic. But unlike traditional banks, they are not required to hold capital cushions. Earlier in January, a shortfall of collateral forced some lenders – and their customers – to shoulder large losses. REUTERS

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