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Danny is the chief editor for Coindesk for special projects. He is the owner of BTC, ETH and SOL.
Bankrupt crypto lending firm Genesis held $5.1 billion in liabilities in the weeks following its freeze on withdrawals last November, according to court documents signed by interim CEO Derar Islim.
In his first day application to the Bankruptcy Court of the Southern District of New York, islim provided an analysis of the financial state of the genesis before its restructuring. Genesis has become the last crypto company overtaken by the immediate fallout from the FTX implosion, with three of them – Genesis HoldCo, Genesis Global Capital LLC as well as Genesis Asia Pacific PTE. LTD – filing for chapter 11 bankruptcy protection late Thursday night.
These entities may have been less affected by the direct losses at ftx and alameda than by the "bank race" islim said their collapse triggered. Clients required Genesis to pay back $827 million in loans, forcing its loan units to freeze withdrawals.
"Simultaneously.", mothercompany of Holdco, Digital Money Cluster (dcg), and its different branches, including dcg global investments ltd, were also affected by market turbulence and had no liquidity to repay the company on some loans, lobby debtors' balance sheets," said Mr. Islim. (DCG is a parent of CoinDesk as well.)
At least part of the liquidity crunch began months earlier thanks to Genesis’ $1.2 billion loss to crypto hedge fund Three Arrows Capital (3AC) which collapsed in the summer of 2022. This loss has emerged from the Genesis Asia Pacific unit (which also went bankrupt), that managed the genesis loan relationship with 3ac. at the current 3ac, Genesis had two and a half billion dollars in outstanding loans, whose birth could only recover half, on the basis of the deposit.
Last year, DCG took over a large portion of this exposure, trading a 10-year promissory note for $1.2 billion of Genesis debt against 3AC. That note is now at the center of DCG’s public spat with crypto exchange Gemini over the exchange’s yield product Earn, with Gemini being Genesis’ largest creditor at more than $700 million.
Islim said the bankruptcy process "encourages all parties to act quickly to achieve a consensual settlement that avoids the costs and uncertainty of litigation."
Genesis keeps running most of its non-financial companies, Islim says. Which includes its derivative, trading and custodial components, all held in distinct legal entities that have not gone bankrupt.
Before ftx and 3 ac collapses, the first great domino in this crypto death spiral was the implosion of the terra/luna ecosystem in May of this year, with this disappearance of algorithmic stability spraying tens of billions of dollars in capital. Genesis now joins VoyagerCelsius and others whose bankruptcy can be traced back to that event.
“The collapse of Luna and UST and subsequent liquidation of 3AC signaled the onset of a new ‘crypto winter’ and a growing industry-wide reluctance to do business with digital asset companies,” Islim said.
