It remains to be seen what the impact of a Genesis bankruptcy may have on its parent company, Digital Currency Group (DCG). DCG owes Genesis more than $1.65 billion, according to bankruptcy filings, including a $1.1 billion promissory note created to absorb Genesis losses in the Three Arrows Capital collapse.
Genesis files for bankruptcy
The Genesis cryptocurrency lending platform filed for bankruptcy, following weeks of turmoil after the FTX collapse. Genesis halted withdrawals shortly after FTX's failure, and shortly afterwards warned of possible bankruptcy if they couldn't raise at least $1 billion in new capital. The past few months have also featured a public conflict between Genesis, along with its parent company DCG and DCG's CEO and founder Barry Silbert, and the Winklevoss twins behind the Gemini crypto exchange.
- "Genesis, a Crypto Lending Firm, Files for Bankruptcy", The New York Times
SEC charges Gemini and Genesis for allegedly offering unregistered securities
The SEC filed charges against Genesis Global Capital and Gemini, two crypto firms that collaborated to create Gemini's embattled Earn lending program. According to the SEC, their lending program constitutes an offer and sale of securities and, as such, should have been registered. Other companies, such as (now bankrupt) Celsius, have in the past shut down similar products in the US due to concerns over regulatory action; it's not clear why Gemini thought their product would pass muster.
On November 16, Gemini halted withdrawals from Earn after Genesis halted withdrawals after FTX collapsed. Since then, Gemini and Genesis have been engaged in a very public battle, with Gemini's founders accusing Genesis and its parent company of misconduct and demanding the return of the $900 million in Gemini customer funds.
- "SEC Charges Genesis and Gemini for the Unregistered Offer and Sale of Crypto Asset Securities through the Gemini Earn Lending Program", U.S. Securities and Exchange Commission
Genesis lays off another 30% of staff
After a round of layoffs in August that impacted 20% of their employees, Genesis is laying off another 30% of their employees.
Genesis is currently in a really bad spot, halting withdrawals from their lending arm in the wake of the FTX collapse and warning of bankruptcy shortly afterwards. The company owes $900 million to customers of Gemini, and Gemini's CEO recently sent an open letter to Genesis's parent company demanding the funds be returned.
Gemini founder writes open letter to Barry Silbert begging for the return of $900 million
On November 16, Genesis halted withdrawals from its lending service shortly after the FTX collapse. Gemini, who partners with Genesis lending to power their Earn program, halted withdrawals hours later. On December 3, the FT revealed that Genesis owes Gemini's customers $900 million.
On January 2, Cameron Winklevoss — one of the twin brothers who operates Gemini — published an open letter on Twitter to Barry Silbert, the founder and CEO of DCG, which is the parent company of Genesis. DCG also has a substantial amount of money that they have borrowed from Genesis.
"More than 340,000 Earn users ... are looking for answers. These users aren't just numbers on a spreadsheet, they are real people. A single mom who lent her son's education money to you. A father who lent his son's bar mitzvah money to you. A husband and wife who lent their life savings to you. A school teacher who lent his children's college funds to you. A policeman, and so many more. All together, these people entrusted more than $900 million of their assets to you," wrote Winklevoss, without any apparent self-reflection on the fact that these words could just as easily have been (and should also be) addressed to him by those same customers of his service.
Genesis owes $900 million to customers of Gemini Earn
After a domino effect in which Gemini suspended withdrawals from its "Earn" lending product due to Genesis suspending withdrawals due to FTX's collapse, it's been revealed by the FT that Genesis holds around $900 million in Gemini customer assets.
Gemini has formed a creditor committee to try to recoup funds from Genesis, as well as Genesis parent company DCG.
- "Crypto broker Genesis owes Winklevoss exchange’s customers $900mn", Financial Times
Genesis warns of bankruptcy if it can't raise $1 billion
Genesis Global Trading has reportedly been telling investors that Genesis may need to file for bankruptcy if its attempts to raise at least $1 billion in new capital don't succeed. The firm revealed its exposure to FTX last week, halting withdrawals from its lending service and acknowledging that its derivatives arm has $175 million in funds locked in the bankrupt exchange.
The Wall Street Journal then reported that Genesis had been seeking a $1 billion emergency loan due to a "liquidity crunch due to certain illiquid assets on its balance sheet".
The halting of withdrawals from Genesis' lending business has already had major downstream impacts, as it is a major partner of other crypto lending services. Gemini and Coinhouse both followed Genesis in suspending withdrawals, as did other firms including Donut and GOPAX.
A Genesis bankruptcy would be a monumental event in crypto, with enormous downstream exposure.
Coinhouse suspends "savings accounts" due to Genesis suspension due to FTX collapse
The French crypto broker Coinhouse announced that they would be suspending withdrawals from their crypto "savings account" product. Coinhouse partners with Genesis to offer the service, and Genesis recently suspended their service due to the FTX collapse. As a result, services that relied on Genesis, including Gemini and now Coinhouse, are halting their own services as the dominoes continue to fall.
Gemini halts withdrawals from their lending service
The Gemini cryptocurrency platform announced that they would be pausing withdrawals on their lending platform. This is because they partner closely with Genesis' lending products, which halted withdrawals shortly before.
The company said in a blog post that they were "working with the Genesis team" to restore withdrawals. Like Genesis, they tried to urge that the issue would not affect other Gemini products. However, a service outage that same day did little to strengthen trust in the company.
Genesis crypto lending service halts withdrawals
The crypto lending portion of Genesis Global Trading announced they would be halting withdrawals in the wake of the "extreme market dislocation and loss of industry confidence caused by the FTX implosion". On Twitter, they wrote that "FTX has created unprecedented market turmoil, resulting in abnormal withdrawal requests which have exceeded our current liquidity."
They urged in their announcement that the decision would not impact their trading or custody businesses — though if I was a user of their other services I might not be feeling so reassured given crypto companies' poor track record of segregating operations.
Genesis has about $2.8 billion in total active loans as of the end of September 2022.
This is not the first crisis for Genesis this year. The firm lost hundreds of millions due to exposure to the Three Arrows Capital collapse, and in August announced layoffs of 20% of their employees.
Crypto executive exodus continues
The wave of crypto executives stepping down from their roles is continuing, after Genesis' CEO left the company and Michael Saylor gave up his CEO title (but stayed on as chairman) in August.
Now, Genesis' managing director has stepped down after five years. Kraken CEO Jesse Powell relinquished his title, planning to remain at the firm as a chairman. Alex Mashinsky has resigned as the CEO of Celsius Network in the midst of bankruptcy proceedings. And FTX US president Brett Harrison will also be stepping down.
- "Genesis director to step down and move into advisory role", Cointelegraph
- "C.E.O. of Kraken, the Cryptocurrency Exchange, Steps Down", The New York Times
- "C.E.O. of Celsius, the Crypto Bank, Resigns", The New York Times
- "Brett Harrison will step down as FTX US president, move into advisory role", Cointelegraph