To ensure that Genesis is not crippled by the loss, its parent company, Digital Currency Group (DCG), bailed him out. But in the process, Genesis reduced its workforce by 20% to reduce costs and Michael Moro, its longtime CEO, stepped down.
Genesis once again found itself on the wrong side of a meltdown earlier this month; when FTX filed for bankruptcy on November 11, the company lost $175 million stored with the exchange. Again, DCG stepped in, providing a cash injection of $140 million.
But despite several DCG bailouts, Genesis has been unable to escape the FTX fallout. Samson Mow, a prominent crypto expert and former chief strategy officer at crypto infrastructure firm Blockstream, said the brokerage was struggling to fund a surge in customers asking to redeem their crypto. This has led to the suspension of withdrawals, which threatens to deepen the current crisis of confidence and increase the likelihood of a run on other lenders (e.g. BlockFi or Voyager Digital) – and so the contagion spreads. spread.
But Mow says it’s important to understand that this is a liquidity issue, not a solvency issue. In other words, Genesis has enough assets to pay its debts, but they are simply not readily available as cash. For that reason, bankruptcy “seems unlikely,” says Mow.
The DCG has also sought to de-dramatize the situation on Twitter, saying the decision to suspend repayments and stop issuing new loans was a “temporary action” and that the issue is limited exclusively to the Genesis Loan Division, which means the trading and guard continue to operate normally.
Nonetheless, the situation is serious enough that Genesis is seeking additional funding, from crypto exchange Binance and private equity firm Apollo Global Management. exploited as potential investors.
The attempt to obtain funding has so far failed, reports suggest, in part due to concerns about the financial relationship between Genesis and other DGC-owned entities. Of the $2.8 billion in loans outstanding on Genesis’ balance sheet, about 30% is to DGC or its subsidiaries, but intercompany loans are currently treated with particular suspicion due to their pivotal role in the collapse. from FTX.
Barry Silbert, CEO of DCG, told investors that B2B loans of this type are not out of the ordinary. “We have weathered previous crypto winters and while this one may seem harsher, collectively we will emerge stronger.”
Yet for all his conviction, Silbert’s rallying cry did not stop the speculation. Recently burned by false assurances from FTX founder Sam Bankman-Fried, who tweeted “FTX is fine” on Nov. 7, just days before the company collapsed, crypto investors are also bracing for bankruptcy at Genesis.
One of the consequences of a potential collapse is already playing out. After withdrawals halted, crypto exchange Gemini, whose yield farming product sits above Genesis, announced that its Earn clients would no longer be able to access their funds.
On November 22, the exchange Explain he was working to “find a solution”, but until then, $700 million in customer funds would remain locked up. If Genesis were to go bankrupt, some of these funds may never be returned, just like at FTX, and clients of other Genesis-related exchanges may suffer the same fate.