Genesis Trading has stopped accepting withdrawals at its loan division, blaming the "unprecedented market turmoil" brought on by Sam Bankman-Fried's FTX demise.
The decision to halt redemptions and new loan originations was made by Genesis, a major player in the fixed income markets for digital assets, in response to "abnormal withdrawal requests that have exceeded our current liquidity."
The problems at Genesis are the most recent indication that the collapse of Bankman-Fried's FTX crypto exchange and Alameda Resear
ch, his trading firm, is shaking the entire sector. The financial services committee of the US House of Representatives announced a hearing on the demise of FTX and its effects on the cryptocurrency market on Wednesday.
The New York-based Genesis offers comparable services to organizations like exchange operator Gemini, which is run by twins Tyler and Cameron Winklevoss, and allows customers to lend out their coins in exchange for yields of up to 10%. Genesis also loans digital currency to organizations like family offices and hedge firms.
According to its website, Genesis had $2.8 billion in "active loans" at the end of the third quarter of 2022. In 2021, it created $131 billion in loans.
The suspension of withdrawals, according to its parent business, Digital Currency Group, controlled by billionaire Barry Silbert, "was made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion."
Concerns regarding its business partners have also been raised as a result of the suspension. On Wednesday, Gemini declared that it was "aware" of Genesis' issues.
In a product that rewards users with interest for lending out their crypto assets, Gemini and Genesis have partnered. The primary loan partner is Genesis.
"We are working with the Genesis team to help customers redeem their funds...as quickly as possible," Gemini stated.
Crypto platform Luno, a different Genesis partner, assured consumers that their assets were secure and noted that it had "taken steps" to make sure they could access their money "in the event withdrawals from Genesis are not possible."
Genesis stated that it would present a plan for the lending sector next week after hiring "the best advisers in the industry to explore all possible options." It stated that it was "working tirelessly" to find additional liquidity among other solutions to problems.
Last week, Genesis claimed to have $175 million in money stranded on FTX. The parent firm of Bankman-Fried’s exchange injected $140 million into Genesis on Friday, just hours before that company filed for bankruptcy. This is the second lifeline DCG has offered Genesis this year.
Nicola White, the chief executive of B2C2, said the cryptocurrency market maker was willing to buy some of the Genesis loan book. She remarked, "“We won’t take every client," and added that the company would follow strict risk management guidelines.
The collapse of Three Arrows Capital, a Singapore-based cryptocurrency hedge fund that declared bankruptcy in July after losing wagers on bitcoin and other cryptocurrencies, had a significant impact on Genesis. According to court records, Genesis lent Three Arrows $2.4 billion. DCG took over the whole $1.2 billion claim Genesis had against Three Arrows during the summer.
Genesis stated that its trading and custody operations are up and running, noting that its trading arm is "independently capitalised and operated — and separate from all other Genesis entities."
According to DCG, which also owns the news website CoinDesk and the cryptocurrency asset management Grayscale Investments, "no impact on the business operations of DCG and our other wholly owned subsidiaries" has been felt.
By fLEXI tEAM