Genesis crypto lending unit files for US bankruptcy

Genesis crypto lending unit files for US bankruptcy

Jan 20 (Portal) – The lending unit of crypto firm Genesis filed for U.S. bankruptcy protection from creditors on Thursday that was toppled by a market crisis along with exchanges including exchange FTX and lender BlockFi.

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

Genesis’ credit department said it had both assets and liabilities in the $1 billion to $10 billion range and estimated it had over 100,000 creditors on its file with the US Bankruptcy Court for the Southern District of New York.

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

Genesis Global Holdco said in a statement it was considering a potential sale or equitization transaction to pay creditors and had $150 million in cash to support the restructuring.

It added that Genesis’ derivatives and spot trading, broker-dealer and custody businesses were not part of the bankruptcy proceedings and would continue with its client trading operations.

Genesis’ bankruptcy filing is the latest in a cascade of crypto outages and drastic job cuts sparked by falling prices over the past year.

Genesis was already embroiled in a dispute with Gemini Trust Co, founded by identical twins of cryptocurrency pioneers Cameron and Tyler Winklevoss, former US Olympic rowers. The two firms are in dispute over a crypto lending product called Earn, which they jointly offer.

The Winklevoss twins said Genesis owed more than $900 million to around 340,000 Earn investors. On Jan. 10, Cameron Winklevoss called for the removal of Barry Silbert as Chief Executive of Digital Currency Group.

About an hour after filing for bankruptcy, Cameron Winklevoss tweeted that Silbert and Digital Currency Group continued to deny creditors a fair deal.

“If Barry (Silbert) and DCG don’t come to their senses and make the creditors a fair offer, we will be filing a lawsuit against Barry and DCG shortly,” Winklevoss said in his tweet thread.

Genesis and Gemini were indicted by the US Securities and Exchange Commission on January 12 for illegally selling securities to investors through the Earn program. Tyler Winklevoss called the complaint disappointing.

Genesis brokered digital assets for financial institutions such as hedge funds and wealth managers and had nearly $3 billion in total active loans at the end of the third quarter, compared to $11.1 billion a year earlier, according to its website.

Last year, Genesis originated $130.6 billion in crypto loans and traded $116.5 billion in assets, according to its website.

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

Three Arrows’ debt to Genesis was assumed by parent company Digital Currency Group (DCG), which subsequently filed a lawsuit against Three Arrows. DCG’s portfolio companies also include crypto asset manager Grayscale and news service CoinDesk.

Crypto lenders, which acted as de facto banks, have boomed during the pandemic. In contrast to traditional banks, however, they do not have to maintain a capital buffer. Earlier this year, a lack of collateral forced some lenders – and their customers – to suffer big losses.

reporting by Tom Hals in Wilmington, Delaware and Akanksha Khushi; Editing by Lananh Nguyen, Clarence Fernandez and Kim Coghill

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