Genesis Trading, a large crypto financial services group, has halted withdrawals at its lending unit, blaming the “unprecedented market turmoil” caused by the collapse of Sam Bankman-Fried’s corporate empire.
The group said on Wednesday that its decision to suspend redemptions and new loan originations came after it faced “abnormal withdrawal requests which 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 across the crypto industry. On Wednesday, the US House of Representatives Financial Services Committee announced a hearing into the collapse of FTX and its impact on the digital asset industry.
Genesis plays a key role in digital asset fixed income markets. The New York-based group allows clients to lend out their coins in exchange for yields of as much as 10 per cent, while also providing similar services for groups including exchanges operator Gemini. On the other side of the ledger, it lends coins to institutions such as hedge funds and family offices.
Genesis had $2.8bn of “active loans” as of the third quarter of 2022, according to its website.
“This decision was made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion,” said Genesis’ parent company, Digital Currency Group, which is owned by billionaire Barry Silbert.
The suspension of withdrawals by Genesis also prompted concerns about its business partners. Gemini, a crypto exchange and custodian run by twins Tyler Winklevoss and Cameron Winklevoss, on Wednesday said it was “aware” of the problems facing Genesis.
The two companies are partnered on an “Earn” product that provides customers interest payments for lending out their crypto assets, with Genesis being the main lending partner.
“We are working with the Genesis team to help customers redeem their funds from the Earn program as quickly as possible,” Gemini said.
Another Genesis partner, crypto platform Luno, said its customers’ assets were safe, adding it had “previously taken steps to ensure that customers can retain access to Savings Wallet funds in the event withdrawals from Genesis are not possible”.
Genesis said it had hired “the best advisers in the industry to explore all possible options” and would deliver a plan for the lending business next week. “We’re working tirelessly to identify the best solutions for the lending business, including among other things, sourcing new liquidity,” it said.
Max Boonen, founder of digital asset market maker B2C2, said on Twitter that the company “wishes to extend an offer to purchase loans from [Genesis Trading’s] book to alleviate the current liquidity shortfall”.
Genesis said last week it had $175mn in funds stuck on FTX. On Friday, just hours before Bankman-Fried’s exchange filed for bankruptcy, DCG injected $140mn into Genesis. It marked the second lifeline given to Genesis by its parent company this year.
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 that Genesis had lent Three Arrows $2.4bn in undercollateralised loans. Over the summer, DCG assumed Genesis’ entire $1.2bn claim against Three Arrows.
Genesis’ trading and custody businesses remain fully operational, Genesis said, adding that its 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 operations of DCG and our other wholly owned subsidiaries”.