The lending division of cryptocurrency asset manager Genesis has halted customer redemptions and new loan applications, according to a Genesis tweet on Wednesday, November 16.
“…in consultation with our professional financial advisors and counsel, we have taken the difficult decision to temporarily suspend redemptions and new loan originations in the lending business.”
Industry participants attest to the spreading FTX contagion that has since affected the crypto credit markets, including one of the largest operators, Genesis.
Genesis Global Capital boasts a vast institutional clientele, recording more than $2.8 billion in active loans. According to Genesis, the decision follows the collapse of the crypto exchange FTX under Sam Bankman-Fried’s leadership.
In a Wednesday morning call, Genesis executives narrated the situation to the firm’s institutional lenders, according to an individual granted anonymity to disclose sensitive business dealings. There was also another anonymous source last week who said that Genesis was “functionally insolvent.”
Genesis’ Lending Division In Trouble
Interim CEO Derar Islim has spoken for Genesis, saying, “Genesis has three primary business lines: spot and derivatives trading, lending and borrowing, and custody. He added that the crypto lender’s location, derivatives trading, and custody businesses remain operational.
Islim confirmed that Genesis’s lending operations have been affected by the FTX implosion, attributing the situation to a bank run- the broader exchange liquidity issues due to a rush by big-money traders trying to move their investments from exchanges to the safer alternative, cold storage solutions.
In the aftermath of the FTX collapse, Genesis disclosed that over $175 million in locked funds were held by FTX, prompting venture capital firm Digital Currency Group (DCG) to provide a $140 million equity infusion.
Islim also explained that Genesis was actively seeking solutions for its liquidity crises and would be looking for sources of “fresh liquidity.” Meanwhile, the interim CEO has assured the New York-based firm’s priority is to “serve our clients and preserve their assets.”
In a series of tweets on Wednesday morning, Genesis’ main backer, DCG, confirmed the disclosure, highlighting that Genesis’ custody and trading arms were not affected.
“Today Genesis Global Capital, GenesisTrading’s lending business, made the difficult decision to suspend redemptions and new loan originations temporarily.”
Vice President of Communications and Marketing at DCG Amanda Cowie said the decision was made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion. The move to halt Genesis lending is already disrupting crypto services across the ecosystem.
However, Genesis has assured that they are working diligently to shore up the necessary liquidity to meet the company’s client lending obligations. Noteworthy, Genesis Trading functions as the brokerage division of Genesis Capital. The brokerage arm is separately run and capitalized from the broader lending institution.
Genesis Fights Bankruptcy, But The Odds Are Low
Acknowledging these efforts, a source noted that Genesis appears to be “trying at all costs to avoid bankruptcy. While the move is somewhat admirable, it may prove very expensive to the crypto lender.
Putting off credit operations will have dire consequences for the broader crypto sector, as Genesis offered bank-end lending operations for most yield-offering exchange products. This includes but is not limited to Gemini Earn, known to advertise almost 8.05% interest paid on cryptocurrency deposits.
Following the announcement that Genesis had halted crypto lending services, Gemini Earn rushed to publish that it would not be processing Earn redemptions indefinitely. Meaning that until a timeline is provided, the service will remain inactive. However, Gemini has assured that its crypto withdrawal services remain operational.