Genesis Trading has halted withdrawals at its lending unit as the crypto financial services group blamed the “unprecedented market turmoil” sparked by the collapse of Sam Bankman-Fried’s X.
Genesis, which plays a key role in digital asset fixed income markets, said its decision to suspend redemptions and new loan originations followed “abnormal withdrawal requests which have exceeded our current liquidity”.
The troubles at Genesis are the latest sign that the failure of Bankman-Fried’s X crypto exchange and Alameda Research, his 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 X and its impact on the crypto market.
New York-based Genesis 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, which is run by twins Tyler and Cameron Winklevoss. Genesis also lends digital coins to institutions such as hedge funds and family offices.
Genesis had $2.8bn of “active loans” at the end of the third quarter of 2022, according to its website. It originated $131bn of loans in 2021.
Its parent company, Digital Currency Group, which is owned by billionaire Barry Silbert, said the suspension of withdrawals “was made in response to the extreme market dislocation and loss of industry confidence caused by the X implosion”.
The suspension has also prompted concerns about its business partners. Gemini on Wednesday said it was “aware” of the problems facing Genesis.
Gemini and Genesis are partners on a product that pays customers interest for lending out their crypto assets. Genesis is the main lending partner.
“We are working with the Genesis team to help customers redeem their funds . . . as quickly as possible,” Gemini said.
Another Genesis partner, crypto platform Luno, said its customers’ assets were safe, adding it had “taken steps” to ensure customers could access their 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. It added it was “working tirelessly” to resolve issues, including “sourcing new liquidity”.
Genesis said last week it had $175mn in funds stuck on X. On Friday, just hours before Bankman-Fried’s exchange filed for bankruptcy, its parent company injected $140mn into Genesis — the second lifeline DCG has given Genesis this year.
B2C2 chief executive Nicola White said the crypto market maker was prepared to purchase some of the Genesis loan book. “We won’t take every client,” she said, adding that the firm would use rigorous risk management procedures.
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. Over the summer, DCG assumed Genesis’ entire $1.2bn claim against Three Arrows.
Genesis’ trading and custody businesses are fully operational, Genesis said, adding that its trading arm was “independently capitalised 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”.
Additional reporting by Katie Martin