The crypto lending division of Genesis Trading, Genesis Global Capital, has temporarily paused its withdrawal and loan origination services as it faces “abnormal withdrawal requests” in the wake of the FTX collapse.
To allay customer fears, Genesis Trading reassured customers on Twitter that its crypto spot, derivative, and custody business remains operational.
Genesis announcement sparks industry fear
The company said that the default of failed crypto hedge fund Three Arrows forced it to take measures to improve liquidity and de-risk its books. However, the FTX collapse prompted a flurry of withdrawals that challenged its available liquidity.
However, FTX has created unprecedented market turmoil, resulting in abnormal withdrawal requests which have exceeded our current liquidity.
— Genesis (@GenesisTrading) November 16, 2022
The company said that it is in consultation with advisors regarding the pausing of withdrawals and will release a plan for the future of its lending business next week.
In light of recent industry events, Twitter users mainly responded negatively to the news, with H.E. Pariston saying that “everyone is going down.”
Everyone is going down.
— H.E. Pariston (@miladyenforcer) November 16, 2022
Xenu tweeted that this is just the beginning of the crypto contagion:
The contagion is going to get worse. I can't wait. https://t.co/fxu1fgomb1 failing is around the corner.
— xenu (@xenumonero) November 16, 2022
Genesis Global Trading and its crypto lending arm belong to the Digital Currency Group (DCG), the parent company of Grayscale Investments and crypto news outlet Coindesk. Three Arrows Capital had borrowed $2.4 billion from Genesis Asia Pacific before bankrupting earlier this year.
Early predictions suggested that the Digital Currency Group may need to dissolve Grayscale’s GBTCEthereum trusts to help prop up Genesis.
We're hearing semi-credible rumors that Genesis may be having solvency issues. They are having a call with their creditors tomorrow at 8 AM EST to explain the situation. If true, they may possibly be dissolving ETHE and GBTC to pay back their lenders. We will know more tomorrow.
— Autism Capital ?? (@AutismCapital) November 16, 2022
Despite pausing withdrawals, the company has neither confirmed nor denied the need for such a dissolution.
Borrowers currently owe Genesis around $2.8 billion, the company in a third-quarter report at the end of Sep. 2022. Additionally, the company laid off a fifth of its employees in Aug. 2022, with former CEO Michael Moro stepping down shortly after.
Genesis derivatives business booming
On Nov. 9, 2022, Genesis announced that its derivatives business was booming and had no exposure to FTT, FTX’s native token. The token is currently in freefall, having lost about 93% of its value since Nov. 8, 2022, to trade at roughly $1.42 at press time.
Additionally, Genesis said it has no outstanding loans with FTX.
Our business ops, including lending and trading across spot and derivatives, continue to run normally and our balance sheet remains strong. Yesterday was a top 5 volume day for our derivatives business as clients turn to us during volatile market conditions to manage their risk.
— Genesis (@GenesisTrading) November 9, 2022
However, it does have $175 million related to its derivatives business locked in a trading account with FTX. DCG recently injected $140 million equity into Genesis after FTX accounts were frozen.
The Wall Street Journal recently reported that Genesis lent money to trading firm Alameda Research. According to people familiar with the matter, it accepted the FTT token as collateral. Genesis tweeted that it had sold the collateral from all counterparties at a loss of $7 million.
We want to provide an update on where things currently stand with our lending business. In anticipation of the extreme market volatility yesterday, we hedged and sold collateral resulting in a total loss of ~$7M across all counterparties, including Alameda.
— Genesis (@GenesisTrading) November 9, 2022
Alameda had made a series of venture capital investments using borrowed money. Later, it required a bailout from FTX after several key borrowers couldn’t repay their loans.
Genesis suspension affects Gemini Earn Program
Genesis Global Capital is the latest victim of an industry-wide shake-up caused by the collapse of Sam Bankman-Fried’s FTX crypto empire. Crypto lender filed for bankruptcy on Nov. 15, 2022, while decentralized finance protocol Ren announced that it would no longer receive funds from Alameda Research, a hedge fund with close links to FTX.
Shortly after the Genesis announcement, crypto exchange Gemini announced that it would help customers of its Earn program withdraw funds. According to the exchange, Genesis cannot honor withdrawals within five days as per its service-level agreement. Genesis is the lending partner of Gemini Earn, which offers customers up to 8.05% annual percentage yield on their crypto.
