Crypto lending firm Genesis held $5.1 billion in liabilities in the weeks following its freeze on withdrawals last November, according to bankruptcy court documents signed by interim CEO Derar Islim.
In his first-day motion in the U.S. Bankruptcy Court for the Southern District of New York, Islim provided a breakdown of Genesis’ financial state heading into its restructuring. Genesis became the latest crypto firm caught up in the immediate fallout of FTX’s implosion, with three of its entities – Genesis HoldCo, Genesis Global Capital LLC and Genesis Asia Pacific PTE. LTD – filing for Chapter 11 bankruptcy protection late Thursday.
Those entities were perhaps less affected by direct losses to FTX and sister company Alameda than by the “run on the bank” that Islim said their collapse sparked. Customers demanded Genesis repay $827 million in loans, forcing its lending units to freeze withdrawals.
“At the same time, Holdco’s corporate parent, Digital Currency Group (DCG), and its various subsidiaries, including DCG International Investments Ltd., were also impacted by the market turmoil and did not have the liquidity to pay back the Company on certain loans, adding pressure to the Debtors’ balance sheets,” Islim said. (DCG is also the parent of CoinDesk.)
At least part of the liquidity crunch began months earlier thanks to Genesis’ $1.2 billion loss to crypto hedge fund Three Arrows Capital (3AC), which collapsed in the summer of 2022. That loss came out of the Genesis Asia Pacific unit (that also filed for bankruptcy), which managed Genesis’ lending relationship with 3AC. At the time of 3AC going under, Genesis had $2.4 billion in outstanding loans to the fund, of which Genesis was able to recover just half, according to the filing.
DCG last year assumed much of that exposure, swapping a 10-year promissory note in exchange for Genesis’ $1.2 billion in claims against 3AC. That note is now at the center of DCG’s public spat with crypto exchange Gemini over the exchange’s yield product Earn, with Gemini being Genesis’ largest creditor at more than $700 million.
Islim said the bankruptcy proceedings “incentivize all stakeholders to move expeditiously toward a consensual resolution that avoids the costs and uncertainty of litigation.”
Genesis continues to operate most of its non-lending businesses, Islim said. That includes its derivatives, trading and custody wings, all of which are held in separate legal entities that did not file for bankruptcy.
Prior to the collapses of FTX and 3AC, the initial major domino in this crypto death spiral was the implosion of the terraUSD (UST)-luna ecosystem in May, with that algorithmic stablecoin’s demise vaporizing tens of billions of dollars in capital. Genesis now joins BlockFi, Voyager and Celsius and others whose bankruptcy can be traced back to that event.
“The collapse of luna and UST and subsequent liquidation of 3AC signaled the onset of a new ‘crypto winter’ and a growing industry-wide reluctance to do business with digital asset companies,” Islim said.
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