Genesis Trading halted withdrawals from its lending unit as the crypto financial services group blamed “unprecedented market turmoil” caused by the collapse of Sam Bankman-Fried’s FTX.
Genesis, which plays a key role in the digital asset fixed income markets, said its decision to suspend repayments and new loan issuance followed “abnormal withdrawal requests that exceeded our current liquidity. “.
The Genesis troubles are the latest sign that the failure of the FTX crypto exchange of Bankman-Fried and Alameda Research, its trading company, is sending shockwaves through the crypto industry. On Wednesday, the US House of Representatives Financial Services Committee announced a hearing on the collapse of FTX and its impact on the crypto market.
New York-based Genesis allows customers to lend their coins in exchange for returns of up to 10%, while providing similar services to groups including exchange operator Gemini, which is run by twins Tyler and Cameron Winklevoss. Genesis also lends digital coins to institutions such as hedge funds and family offices.
Genesis had $2.8 billion in “active loans” at the end of the third quarter of 2022, according to its website. It issued $131 billion in loans in 2021.
Its parent company, Digital Currency Group, which is owned by billionaire Barry Silbert, said the suspension of withdrawals “was made in response to the extreme market dislocation and loss of industry confidence caused by the implosion of the FTX”.
The suspension has also raised concerns about its trading partners. Gemini said on Wednesday that it was “aware” of the problems with Genesis.
Gemini and Genesis are partners on a product that pays interest to customers for lending their crypto assets. Genesis is the main lending partner.
“We work with the Genesis team to help clients redeem their funds. . . as quickly as possible,” Gemini said.
Another Genesis partner, crypto platform Luno, said its clients’ assets were safe, adding that it had “taken steps” to ensure clients could access their funds “just in case. withdrawals from Genesis would not be possible”.
Genesis said it has hired “the best advisers in the industry to explore all possible options” and will outline a plan for loan activity next week. He added that he was “working tirelessly” to resolve the issues, including the “supply of new cash”.
Genesis said last week that it had $175 million in funds locked up on FTX. On Friday, just hours before Bankman-Fried filed for bankruptcy, its parent company injected $140 million into Genesis — the second lifeline DCG gave Genesis this year.
B2C2 Managing Director Nicola White says the crypto market maker is ready to buy some of the Genesis loan book. “We won’t accept all clients,” she said, adding that the company would use rigorous risk management procedures.
Genesis was hit hard by the failure of Three Arrows Capital, the Singapore-based crypto hedge fund that filed for bankruptcy in July when its bets on bitcoin and other cryptocurrencies soured. Court documents showed Genesis loaned Three Arrows $2.4 billion. Over the summer, DCG assumed Genesis’s entire $1.2 billion claim against Three Arrows.
Genesis’ trading and custody operations are fully operational, Genesis said, adding that its trading arm was “capitalized and operated independently – and separate from all other Genesis entities.”
DCG, which also owns crypto asset manager Grayscale Investments and news site CoinDesk, said there was “no impact to the business operations of DCG and our other wholly owned subsidiaries.”
Additional reporting by Katie Martin