Genesis Trading, a major crypto-financial services company, has halted withdrawals at its lending unit, blaming the “unprecedented market turmoil” caused by the collapse of Sam Bankman-Fried’s business empire.
The group said on Wednesday the decision to suspend redemptions and new loans came after it faced “abnormal withdrawal requests that have exceeded our current liquidity.”
The troubles at Genesis are the latest sign that the failure of Bankman-Fried’s FTX crypto exchange and Alameda Research, a trading firm, 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 digital asset industry.
Genesis plays a key role in the fixed income digital asset markets. The New York-based group allows customers to lend their coins in exchange for returns of as much as 10 percent, while also providing similar services to groups including exchange operator Gemini. On the other side of the ledger, it lends coins to institutions such as hedge funds and family offices.
According to its website, Genesis had $2.8 billion in “active loans” as of Q3 2022.
“This decision was made in response to the extreme market disruption and loss of confidence in the industry due to the FTX implosion,” says Genesis parent company Digital Currency Group, which is owned by billionaire Barry Silbert.
Genesis’ suspension of withdrawals also raised concerns about its business partners. Gemini, a crypto exchange and custodian run by twins Tyler Winklevoss and Cameron Winklevoss, said Wednesday it was “aware” of the issues facing Genesis.
The two companies are collaborating on an “Earn” product that offers clients interest payments for lending their crypto assets, with Genesis being the main lending partner.
“We are working with the Genesis team to help customers redeem their Earn program funds as quickly as possible,” said Gemini.
Another Genesis partner, crypto platform Luno, said its customers’ assets were safe, adding that it had “previously taken steps to ensure customers can continue to access Savings Wallet funds in the event that Genesis withdrawals are not possible. to be”.
Genesis said it had “hired the best advisers in the industry to explore all possible options” and would present a lending plan next week. “We work tirelessly to find the best lending solutions, including finding new liquidity, among other things,” the company said.
Max Boonen, founder of digital asset market maker B2C2, said on Twitter that the company wants to “make an offer to buy loans from [Genesis Trading’s] book to alleviate the current liquidity shortage”.
Genesis said last week it had $175 million in funds on FTX. On Friday, just hours before the Bankman-Fried stock market went bust, DCG injected $140 million into Genesis. It was the second lifeline given to Genesis by its parent company this year.
Genesis was hit hard by the bankruptcy of Three Arrows Capital, the Singapore-based crypto hedge fund that filed for bankruptcy in July as bets on bitcoin and other cryptocurrencies soured. Court documents showed that Genesis Three Arrows had borrowed $2.4 billion in collateralized loans. During the summer, DCG took over Genesis’ entire $1.2 billion claim to Three Arrows.
Genesis’ trading and custody operations remain fully operational, Genesis said, adding that the trading arm was “independently capitalized and operated — 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 on the business of DCG and our other wholly owned subsidiaries.”