Amid the FTX collapse, Genesis Global Capital, the lending business of cryptocurrency broker Genesis, is now also halting withdrawals and new lending. Since the Alameda debacle, customer concern has led to abnormal withdrawal requests that have exceeded current liquidity, the company said.
The implosion of crypto exchange FTX and market maker Alameda continue to shake the broader crypto ecosystem. The largest crypto lender, Genesis Global Capital, announced the preliminary pause of its lending operations in a video call with investors. It said the subsidiary of crypto giant Digital Currency Group (DCG) is no longer able to fully cover its $2.8 billion in outstanding loans. The lender suffered significant losses in the billions of dollars during both the collapse of hedge fund Three Arrows Capital and the current FTX/Alameda debacle, which could potentially threaten their solvency.
Genesis lacks liquidity
Last week, the company announced that it had incurred derivative losses of about USD 175 million from FTX. Some of that ($140 million) was covered by a cash infusion from parent DCG - similar to what happened in July when the crypto conglomerate took over the $1.2 billion credit claim against Three Arrows. Genesis Global Capital is the lending arm of crypto suite Genesis and serves an institutional client base. By the end of the third quarter of 2022, the firm recorded $8.4bn in loan volume, of which $2.8bn remains outstanding.
"Genesis Global Capital, Genesis' lending business, has made the difficult decision to temporarily suspend repayments and new lending. This decision was made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion." - Amanda Cowie, vice president in communications and marketing at DCG
Interim CEO Derar Islim told customers that Genesis is looking for solutions for its credit department. He said the board is currently looking for a new source of liquidity and intends to present its plan in detail to clients next week. Genesis' trading and custody services are run through Genesis Trading, which acts as Genesis Global Capital's broker/dealer. Genesis said its cash and derivatives trading as well as custody business will continue to be fully functional. Genesis Trading should soon be capitalized and operated independently of the credit division.
The dominoes continue to fall
The industry has already been shocked by several debacles this year, including the collapse of Terra and its underlying token LUNA. After the FTX debacle, many traders seem to have lost all confidence. Almost all cryptocurrency exchanges are seeing billion-dollar withdrawals. Genesis' announcement is a direct result of the FTX/Alameda insolvency and indirectly affects other companies. For example, crypto exchange Gemini had to shut down its "Earn" program.
1/6 We are aware that Genesis Global Capital, LLC (Genesis) — the lending partner of the Earn program — has paused withdrawals and will not be able to meet customer redemptions within the service-level agreement (SLA) of 5 business days. https://t.co/9e48pF3Ymn
— Gemini (@Gemini) November 16, 2022
But Genesis is far more interconnected. An insolvency of the lender would again force the already struggling Digital Currency Group (DCG) to dig deep into its pockets. DCG's main business is asset management through Grayscale, which operates the Grayscale Bitcoin Trust (GBTC), the Ethereum Trust (ETHE) and 13 other institutionally accessible crypto products. However, without approval of a spot ETF, the underlying assets are trapped in the trust, which could also push the highly exposed issuer into liquidity problems.