Genesis Global Capital Suspends Withdrawals and Granting Loans

In Brief

• Genesis Trading's crypto lending arm pauses withdrawals and new loans as it faces a liquidity crunch.
• This comes after the collapse of hedge fund Three Arrows Capital and crypto exchange FTX.
• Gemini Exchange is helping customers withdraw funds from its crypto Earn program, since Genesis is the lending partner for the program.
  

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.

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.”

Xenu tweeted that this is just the beginning of the crypto contagion:
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 GBTC and Ethereum trusts to help prop up Genesis.

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 said 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.

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.
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 BlockFi 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.

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