Barry Silbert, Founder, Digital Currency Group
Crypto lender Genesis Trading filed for Chapter 11 bankruptcy protection in Manhattan federal court late Thursday night, becoming the latest casualty in the industry contagion caused by the collapses of FTX and hedge fund Three Arrows Capital. The company, which is a part of Barry Silbert’s Digital Currency Group, listed over 100,000 creditors in a “mega” bankruptcy filing, with aggregate liabilities ranging from $1.2 billion to $11 billion dollars, according to bankruptcy documents. This is a significant blow to Digital Currency Group, which has seen mounting problems in recent months.
Loans that turned into bad bets...
Genesis had provided loans to crypto hedge funds and over-the-counter firms, but a series of bad bets made last year severely damaged the lender and forced it to halt withdrawals on November 16. The New York-based firm had extended crypto loans to Three Arrows Capital (3AC) and Alameda Research, the hedge fund started by Sam Bankman-Fried and closely linked to his FTX exchange. 3AC filed for bankruptcy in July in the midst of the “crypto winter.” Genesis had loaned over $2.3 billion worth of assets to 3AC, according to court filings. 3AC creditors have been fighting in court to recover even a sliver of the billions of dollars that the hedge fund once controlled.
Crypto lender Genesis Trading filed for Chapter 11 bankruptcy protection in Manhattan federal court late Thursday night, becoming the latest casualty in the industry contagion caused by the collapses of FTX and hedge fund Three Arrows Capital. The company, which is a part of Barry Silbert’s Digital Currency Group, listed over 100,000 creditors in a “mega” bankruptcy filing, with aggregate liabilities ranging from $1.2 billion to $11 billion dollars, according to bankruptcy documents. This is a significant blow to Digital Currency Group, which has seen mounting problems in recent months.
Loans that turned into bad bets...
Genesis had provided loans to crypto hedge funds and over-the-counter firms, but a series of bad bets made last year severely damaged the lender and forced it to halt withdrawals on November 16. The New York-based firm had extended crypto loans to Three Arrows Capital (3AC) and Alameda Research, the hedge fund started by Sam Bankman-Fried and closely linked to his FTX exchange. 3AC filed for bankruptcy in July in the midst of the “crypto winter.” Genesis had loaned over $2.3 billion worth of assets to 3AC, according to court filings. 3AC creditors have been fighting in court to recover even a sliver of the billions of dollars that the hedge fund once controlled.
Barry Silbert, Founder, Digital Currency Group
Meanwhile, Alameda was integral to FTX’s eventual demise. Bankman-Fried has repeatedly denied knowledge of fraudulent activity within his web of companies, but remains unable to provide a substantial explanation for the multi-billion dollar hole. He was arrested in December and is released on a $250 million bond ahead of his trial, which is set to begin in October. Genesis had a $2.5 billion exposure to Alameda, though that position was not detailed in the bankruptcy filing.
Will Gemini and Donut ben next?
The filing also noted a $765.9 million loan payable from Gemini and a $78 million loan payable from Donut, a high-yield, decentralized platform, and a VanEck fund, with a $53.1 million loan payable. Gemini and Circle, two of Genesis’ largest clients, are both operated by stablecoin USD Coin. Gemini co-founder Cameron Winklevoss initially responded to the news on Twitter, writing that Silbert and DCG “continue to refuse to offer creditors a fair deal.”
Genesis is in negotiations with creditors represented by law firms Kirkland & Ellis and Proskauer Rose, sources familiar with the matter said. The bankruptcy puts Genesis alongside other fallen crypto exchanges including BlockFi, FTX, Celsius, and Voyager. The company’s derivatives and spot trading business will continue unhindered, as will Genesis Global Trading.
In a statement, Genesis interim CEO Derar Islim said, “We look forward to advancing our dialogue with DCG and our creditors’ advisors as we seek to implement a path to maximize value and provide the best opportunity for our business to emerge well-positioned for the future.”
The filing follows months of speculation over whether Genesis would enter bankruptcy protection, and just days after the Securities and Exchange Commission filed suit against Genesis and its onetime partner, Gemini, over the unregistered offering and sale of securities. Parent company DCG, which owes creditors a mounting debt of more than $3 billion, suspended dividends this week, CoinDesk reported.
Cameron Winklevoss, Gemini
Genesis is in negotiations with creditors represented by law firms Kirkland & Ellis and Proskauer Rose, sources familiar with the matter said. The bankruptcy puts Genesis alongside other fallen crypto exchanges including BlockFi, FTX, Celsius, and Voyager. The company’s derivatives and spot trading business will continue unhindered, as will Genesis Global Trading.
In a statement, Genesis interim CEO Derar Islim said, “We look forward to advancing our dialogue with DCG and our creditors’ advisors as we seek to implement a path to maximize value and provide the best opportunity for our business to emerge well-positioned for the future.”
The filing follows months of speculation over whether Genesis would enter bankruptcy protection, and just days after the Securities and Exchange Commission filed suit against Genesis and its onetime partner, Gemini, over the unregistered offering and sale of securities. Parent company DCG, which owes creditors a mounting debt of more than $3 billion, suspended dividends this week, CoinDesk reported.
Emergency $1bn sought...
The collapse of FTX in November put a freeze on the market and led customers across the crypto landscape to seek withdrawals. The Wall Street Journal reported that, following FTX’s meltdown, Genesis had sought an emergency bailout of $1 billion, but found no interested parties. This bankruptcy filing is a significant blow to the crypto industry and highlights the ongoing volatility and uncertainty that plagues the market. It also serves as a reminder of the risks associated with lending in the crypto space, and the need for proper regulations and oversight.
The bankruptcy filing of Genesis Trading also raises questions about the future of Barry Silbert’s Digital Currency Group, as it continues to face mounting debts and issues within its portfolio companies. The Winklevoss twins, who are investors in Gemini, have also announced plans to take legal action against Silbert and DCG for their handling of the Genesis Trading situation.
Overall, the bankruptcy of Genesis Trading is a stark reminder of the volatility and risks present in the crypto market. It also highlights the need for more regulations and oversight in the lending space to protect both lenders and borrowers. As the crypto industry continues to evolve and mature, it is essential that the necessary steps are taken to ensure the stability and integrity of the market.