The fallout from Sam Bankman-Fried’s massive farce continues as crypto brokerage Genesis suspends withdrawals from its lending business.
On Oct 10th, Genesis trading revealed that its derivatives business had around $175 million worth of funds locked away in an FTX trading account (hit by its exposure to bankrupt crypto hedge fund Three Arrows Capital, to which it had made a $2.4 billion loan).
On Nov 10th, Genesis trading announced that it will receive an additional equity infusion of $140 million from its parent company, Digital Currency Group. According to the company, this decision was made to “strengthen its balance sheet” and boost its “position as a global leader in crypto capital markets.”
Genesis sent letters to clients stating that it had obtained an additional equity infusion of $140M from parent company, Digital Currency Group. Genesis, with $175 million locked in FTX, is also the largest creditor to Three Arrows Capital Babel Finance. pic.twitter.com/d77QCODdsf
— Wu Blockchain (@WuBlockchain) November 11, 2022
However, it doesn’t appear to have helped stem the tide of pain amid the FTX farce as Bloomberg reports that Genesis is suspending redemptions and new loan originations at its lending business after facing what it described as “abnormal withdrawal requests.”
Chief Executive Officer Derar Islim admitted that withdrawal requests exceeded current liquidity at Genesis Global Capital, the lending arm; but made it clear that Genesis’s spot and derivatives trading and custody businesses “remain fully operational.”
Genesis also reassured its clients that it doesn’t have “an ongoing lending relationship with FTX or Alameda.”
As Bloomberg notes, Genesis is one of the oldest and most well-known cryptocurrency brokers, offering trading and custody services to professional investors in digital assets. Over the past few years it had also established itself as one of the largest cryptocurrency lenders, allowing funds or other market makers to borrow dollars or virtual currencies to leverage their trades.
The contagion of Genesis lending issues has already hit one large firm, as Gemini Trust Co., the cryptocurrency platform run by the Winklevoss brothers, has halted withdrawals from its Earn program:
“We are aware that Genesis Global Capital, LLC (Genesis) – the lending partner of the Earn program – has paused withdrawals and will not be able to meet customer redemptions within the service-level agreement (SLA) of 5 business days. We are working with the Genesis team to help customers redeem their funds from the Earn program as quickly as possible. We will provide more information in the coming days.”
“The past week has been an incredibly challenging and stressful time for our industry. We are disappointed that the Earn program SLA will not be met, but we are encouraged by Genesis’ and its parent company Digital Currency Group’s commitment to doing everything in their power to fulfill their obligations to customers under the Earn program. We will continue to work with them on behalf of all Earn customers. This is our highest priority. We greatly appreciate your patience,” the statement said.
However, the Winklevi make it clear that this does not impact any other Gemini products and services, reassuring clients that Gemini is a full-reserve exchange and custodian -“all customer funds held on the Gemini exchange are held 1:1 and available for withdrawal at any time.”
Bitcoin prices slipped lower on the headlines…