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Crypto Lending Platform Genesis Suspends Withdrawals Due To FTX Exposure

In the latest crypto news, Genesis Trading, a market maker and lender owned by Digital Currency Group (DCG), held a 10-minute conference call with all creditors and customers. During the meeting, Genesis announced that its lending arm, Genesis Global Capital, would suspend redemptions and new loan origination services, with subsequent arrangements to be announced the next week.

Failure Of Crypto Institutions

After Celsius, Voyager, 3AC, Babel, FTX, and other well-known institutions and platforms successively crashed, the cryptocurrency lending platform Genesis also announced that it had stopped withdrawals and suspended lending. In the conference call and Genesis’ official Twitter statement, the lender claimed exposure to Three Arrows Capital and FTX were two significant influences. Genesis stated that the failure of Three Arrows Capital harmed the liquidity of Genesis Global Capital, Genesis’ lending division. Since then, Genesis has reduced its exposure to book risk and enhanced its liquidity position and collateral quality. However, the collapse of FTX created unprecedented market turmoil, resulting in unusual withdrawal requests that exceeded Genesis’ current liquidity.

Genesis And FTX

Genesis was first founded in 2013 as the first Bitcoin OTC trading platform in the United States. Genesis and Grayscale have been the most important subsidiaries of Digital Currency Group(DCG), with Grayscale providing GBTC securities services and Genesis dealing with trading, lending, and custodian services to provide liquidity support for GBTC. Since then, Genesis has expanded into derivatives trading, cryptocurrency lending, and custody and is one of the largest integrated service providers in the cryptocurrency market. In 2018, Genesis became the fifth company to receive a BitLicense license from the New York Department of Financial Services (DFS). In Q4 2021, the Genesis platform peaked at over $16 billion in loans. But with the market downfall and the Three Arrows Capital crash, Genesis also had to take action.

On November 10, Genesis Trading tweeted that it reduced its risk by hedging and selling collateral in anticipation of volatile markets but still incurred a $7 million loss, according to The Block. Genesis Trading stated that it did not have significant exposure to FTT and other centralized exchange-issued tokens, and 95 percent of the collateral in the lending business consisted of U.S. dollars or U.S. dollar-pegged stablecoins, Bitcoin and Ethereum. They had a trading relationship but no lending relationship with FTX.

On November 11, Genesis Trading claimed that its derivatives business had approximately $175 million locked up in its FTX trading account, which did not impact its market-making activities. They also added that its liquidity and net positions in FTX were not critical to the business. In addition, Genesis Trading did not have an ongoing lending relationship with FTX or Alameda.

On November 11, Genesis claimed to be soon receiving a $140 million equity infusion from Digital Currency Group, its parent company. The capital injection will be used to strengthen Genesis’ balance sheet and reinforce its position in the crypto market.

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