Genesis’ collapse could send shockwaves through the cryptocurrency industry. After running out of liquidity, withdrawals were frozen and new loans stopped. DCG owns multiple crypto firms including Gemini Exchange run by Winklevoss twins Tyler and Cameron Winklevoss.
Genesis extended loans to Three Arrows Capital, a hedge fund connected to Sam Bankman-Fried’s FTX exchange, and Alameda Research; both companies later filed for bankruptcy protection.
What is Genesis?
Genesis Crypto Brokers LLC of New York provides brokerage services to both high net-worth investors and institutional investors. As it holds a BitLicense that authorizes it to act as an agent under state law, Genesis serves as an agent in brokering trades for clients across all asset classes.
Company Description: CryptoCorp is the first over-the-counter trading desk to receive a BitLicense from New York Department of Financial Services, in addition to offering crypto custody and soon releasing an institutional lending API for exchanges.
Genesis was once at the forefront of crypto lending market, providing massive loans at competitive interest rates with minimal collateral requirements. At its peak, Genesis held over $50 billion worth of outstanding loans; however, market declines and high-profile blowups such as Three Arrows Capital collapse and Celsius Network Ltd bankruptcy have greatly damaged Genesis’ reputation; several of their major borrowers have sought protection from creditors while Genesis is involved in legal dispute with Gemini, an exchange run by Cameron and Tyler Winklevoss – two identical twin brothers from America’s East coast!
How does it work?
Genesis is one of the premier digital asset lenders, enabling hedge funds and market makers to borrow cryptocurrency assets such as bitcoin and USDC (a tokenized version of the dollar). Furthermore, Earn allows customers to deposit their own crypto assets while earning interest through yield-generating programs such as their yield generating account.
Last year, Genesis extended cryptocurrency loans worth an estimated $130.6 billion and traded approximately this sum, according to its website. Genesis’ lending business benefitted from an uptick in digital currencies as well as stablecoins and Gemini Exchanges owned by the Winklevoss family.
Now, however, these products are in jeopardy due to a “crypto winter” slump which has seen prices plummet and contributed to the collapse of firms such as Three Arrows Capital which borrowed from Genesis using its FTX token as collateral – Digital Currency Group-owned lender Genesis has since stopped withdrawals; Three Arrows owes around $2.3 billion.
How much can I earn?
Genesis provides institutional trading services to accredited investors and institutions, as well as its Gemini Earn product which pays 7.4% interest on deposits made to it by 340,000 users. Genesis currently manages client accounts totalling over $2.8 billion.
Quartz discovered that FTX’s lending practices have come under scrutiny. Quartz found that loans extended were secured with assets with overinflated valuations and risky debt; additionally, tokens like FTT were accepted as collateral – similar practices have seen other lenders such as Celsius Network and Three Arrows Capital succumb.
A judge is currently deliberating on whether to extend DCG’s bankruptcy claim against Genesis. DCG’s creditors, including Gemini’s Cameron and Tyler Winklevoss of Gemini, are frustrated by how long it is taking for DCG and Genesis to negotiate an agreement to settle Earn users’ outstanding claims. As part of mediation proceedings, an extension was approved, giving DCG more time to convince its bankruptcy trustee that it deserves more of an amount due.
What are the risks?
Genesis offers high levels of risk. To access Genesis, accredited investors with at least $1 million net worth can only participate. In order to gain entry, proof must be presented proving your financial status as well as documents verifying this fact.
Genesis engaged in leveraged trading and investments with high loan-to-value ratios, which are typically considered riskier. Furthermore, they used some of their cryptocurrency as collateral when loaning it out to clients; increasing risk even further.
The lender’s bankruptcy filing comes amid a “crypto winter,” in which many large firms have collapsed and taken investors’ fortunes with them. Furthermore, it raises concerns of contagion given Three Arrows Capital and Alameda Research being prominent players within their industries and having links to troubled companies such as Bankman-Fried’s failed exchange FTX.