Crypto Lender Genesis is on the Chopping Block as Contagion Continues

Bitcoin Magazine ProGenesis requires a $1billion liquidity injection by Monday. Gemini sees significant outflows of bitcoin as fears of bankruptcy spread throughout the industry. Subscribe now to get these insights and other on-chain analysis. They are the backbone infrastructure for institutional investors in the cryptocurrency and broader markets. Genesis Trading was the brokerage that enabled all the activity in the space, including trading, lending, hedging, exchange yields, and more. You may recall the juicy yields of BlockFi and Gemini Earn products. Genesis acts as a middleman between these platforms and the hedge funds to help generate that yield. Genesis held a brief client call to announce the suspension or withdrawal of all redemptions, withdrawals, and new loan originations. After having $175 million in a trading account with FTX, Genesis now requires another liquidity injection. To keep the business running smoothly, Digital Currency Group (DCG), the parent company to Grayscale, invested $140 million. Genesis is now looking for additional capital. This is why Gemini Earn had a to stop withdrawals. Gemini has stated that all other operations are running smoothly. However, the Gemini Earn product was limited and service outages across the platform seem have caused a small rush for bitcoin to be removed from the exchange. 13% of total bitcoin balance has been withdrawn in the last 24 hours. We’ve already said that exchanges are not the best place to store your bitcoin. This is especially true when there’s a high chance that another exchange (or multiple) will be down. To give you an idea, Genesis had $50 billion in loan originations during one quarter and a $12.5 million active loan book at peak market time in 2021. However, both the active loan book and loan originations suffered a severe cut, with their respective values dropping to $2.8 billion and $8.4 billion, respectively, in the third quarter of 2018. In July, Genesis filed a $1.2B claim against Three Arrows Capital. DCG was able to pick up the claim and keep the hit off Genesis’ books. Partially collateralized loans were shares of GBTC and ETHE, AVAX, NEAR tokens, and ETHE. Source: Genesis Quarterly Report. We know that Genesis had lots of interactions with Alameda and Gemini through their OTC trading desk. FTT was also a top-received and sent in that activity. We don’t have enough information to know how much exposure Genesis has had or how much capital was required to make customers whole. Genesis is not allowing us to get more details. The fact that DCG, the parent company, has not yet provided another liquidity injection is a warning sign about where this might lead. News broke that Genesis was seeking a $1B credit facility. This is not good news. In the worst case scenario, DCG may not provide funding. This could raise questions about liquid assets. Grayscale and DCG have dismantled trusts before, so that option is not out of the question. This is a unlikely path, but it’s one worth highlighting, as Grayscale holds 633,600 bitcoin via the Grayscale Bitcoin Trust. This could easily be a regulatory issue, or another limitation (that is not known about), where DCG can’t supply the capital to Genesis. Source: Coinglass.comCircle is the issuer for the stablecoin USDC and also has ties with Genesis. They also point out that the Circle Yield product has $2.6 million in outstanding collateralized loans. This, if true is quite insignificant. We will likely hear more on the state of Genesis over the next few days, as they need the capital injection by Monday. If withdrawals are not suspended or funds are tied up, this would be a huge hit to many institutions in the industry. Genesis reflects exactly why the FTX/Alameda Research collapses have yet to occur. Insolvencies and defaults happen in waves, not in one go. It can take weeks or months to find the largest holes and determine who is experiencing liquidity, counterparty and/or bankruptcy troubles. To protect their balance sheets and reduce counterparty risk, almost every major market maker and player has pulled cash from exchanges. The market is lacking liquidity and volatility is likely to follow. Although the market has seemed to find a temporary bottom amid all of the negative news headlines over the last week, the unknown downside risk still far outweighs the upside potential in the short term.Relevant Past Articles: The Bigger They Are…The Exchange War: Binance Smells Blood As FTX/Alameda Rumors MountCounterparty Risk Happens FastThe Crypto Contagion Intensifies: Who Else Is Swimming Naked?Tagsterms:DcgGenesisGeminiContagion

 

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