In the wake of FTX’s collapse and further fall of the global cryptocurrency market, institutional lending arm of crypto investment bank Genesis has announced that it will be temporarily halting fund withdrawals and issuance of new loans to clients. The company which processed over $130 billion in crypto-backed loans last year, has $12.5 billion in active loans this year, with $2.8 billion outstanding loans in the third quarter of 2022.
Genesis Suspends Withdrawals After FTX Collapse
Genesis has confirmed the suspension will only affect its lending division. The company’s SEC (Securities and Exchange Commission) registered, ‘independently capitalized’ and ‘separately operated’ crypto brokerage unit ‘Genesis Trading’ continues to provide trading and custody services as usual. Digital Currency Group (DCG), owners of Genesis Global Capital, announced the decision in a statement given to its crypto news platform CoinDesk.
“Today Genesis Global Capital, Genesis’s lending business, made the difficult decision to temporarily suspend redemptions and new loan originations. This decision was in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion.
This decision impacts the lending business at Genesis and does not affect Genesis’s trading or custody businesses, importantly, this decision has no impact on the business operations of DCG and our other wholly owned subsidiaries,” said Amanda Cowie, Vice President of Communications and Marketing at DCG.
Genesis adds to the growing list of companies that have been impacted by the implosion of now bankrupt FTX and sister company Alameda Research – a crypto hedge fund that acted as custodian and trading firm for FTX. The companies co-founded and owned by former billionaire Sam Bankman-Fried faced liquidity crunches in November following allegations of overinflating the platform’s native token FTT and holding vast majority of company reserves in the asset. In response to panicked customers withdrawing funds from the platform, the once third largest crypto exchange suspended withdrawals and froze customer assets. FTX also mishandled $2 billion worth of customer funds by transferring them to Alameda’s reserves. In its Chapter 11 bankruptcy filing made at the Delaware bankruptcy court last week, FTX revealed that it owed $8 billion in liabilities to more than one million creditors.
Following the crypto giant’s bankruptcy, Genesis disclosed that its derivatives unit had $175 million locked in a trading account on FTX. Before suspending customer withdrawals Genesis tried to raise a $1 billion loan from investors to thwart possible liquidity constraints. The company had a deadline of last Monday to receive the funds which failed to go through. In a desperate effort to ease the tension, parent company DCG made an equity infusion of $140 million into Genesis’ balance sheet. Crypto exchange and custodian platform Gemini, a partner of the crypto bank, is working on redeeming customer funds from a rewards program that both companies had launched together.
“We are working with the Genesis team to help customers redeem their funds from the Earn Program as quickly as possible. We are disappointed that the Earn Program [service agreement] will not be met, but we are encouraged by Genesis’ and its parent company Digital Currency Group’s commitment to doing everything in their power to fulfill their obligations to customers under the Earn Program,” said Gemini in a statement.
As a follow up to statements made by Gemini, USDT stablecoin issuer Tether confirmed that it had no exposure to either Gemini or Genesis and was conducting business as usual.
Situation with FTX has made things go from bad to worse for Genesis. The crypto investment giant is still reeling from its loss of $2.3 billion in credit to Three Arrows Capital (3AC). In June, the ex-crypto hedge fund declared bankruptcy after facing liquidity issues from its exposure to collapsed crypto project Terra/Luna. This negatively impacted liquidity of Genesis’ lending arm. The latest market collapse also saw Bitcoin (BTC) falling below $16,000, its lowest price point in two years. What the future now holds for Genesis needs to be seen.