Genesis Trading, a large crypto financial services group, halted withdrawals in its lending unit, blaming “unprecedented market turmoil” caused by the collapse of Sam Bankman-Fried’s business empire.
The group said on Wednesday that its decision to suspend redemptions and new loans came after facing “abnormal withdrawal requests that exceeded our current liquidity.”
The Genesis Troubles are the latest sign that the Bankman-Fried FTX failure crypto exchange and Alameda Research, a trading company, are sending shockwaves through the crypto industry. On Wednesday, the US House of Representatives Financial Services Committee announced a hearing on the collapse of FTX and its impact on the digital asset industry.
Genesis plays a key role in digital asset bond markets. The New York-based group allows customers to lend their coins in exchange for returns of up to 10%, while providing similar services to groups including exchange operator Gemini. On the other side of the ledger, it lends coins to institutions such as hedge funds and family offices.
Genesis had $2.8 billion in “active loans” as of Q3 2022, according to its website.
“This decision was made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion,” said Genesis parent company Digital Currency Group, which is owned by the billionaire. Barry Silbert.
Genesis’ suspension of withdrawals has also raised concerns about its trading partners. Gemini, a crypto exchange and custodian run by twins Tyler Winklevoss and Cameron Winklevoss, said Wednesday it was “aware” of the issues Genesis is facing.
The two companies are partners on an “Earn” product that provides customers with interest payments for lending their crypto assets, with Genesis being the primary lending partner.
“We are working with the Genesis team to help customers withdraw their funds from the Earn program as quickly as possible,” Gemini said.
Another Genesis partner, crypto Luno said its clients’ assets were safe, adding that it had “previously taken steps to ensure that clients can retain access to savings wallet funds in the event that withdrawals from Genesis do not would not be possible”.
Genesis said it has hired “the best advisers in the industry to explore all possible options” and will outline a plan for loan activity next week. “We are working tirelessly to identify the best solutions for the lending industry, including, among other things, finding new liquidity,” he said.
Max Boonen, founder of digital asset marketplace maker B2C2, said on Twitter that the company “wants to extend a loan purchase offer to [Genesis Trading’s] book to compensate for the current lack of liquidity”.
Genesis said last week that it had $175 million in funds locked up on FTX. On Friday, just hours before Bankman-Fried filed for bankruptcy, DCG injected $140 million into Genesis. This was the second lifeline given to Genesis by its parent company this year.
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 Genesis lent Three Arrows $2.4 billion in undersecured loans. Over the summer, DCG assumed Genesis’s entire $1.2 billion claim against Three Arrows.
Genesis’ trading and custody businesses remain fully operational, Genesis said, adding that its trading arm was “capitalized and operated independently — 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 to the business operations of DCG and our other wholly owned subsidiaries.”