Crypto lender Genesis files for Chapter 11 bankruptcy in federal court in Manhattan, thus becoming the latest victim of the industry contagion caused by the FTX crash . A crippling blow to a business once at the heart of Barry Silbert’s Digital Currency Group.
Genesis: what happened
The company has listed more than 100,000 creditors in one “mega” bankruptcy filing, with aggregate liabilities ranging from $1.2 billion to $11 billion, according to documents in which three separate filings were filed for the Genesis holding companies.
In a statement, the company noted that the companies were only involved in Genesis’ cryptocurrency lending business.
L’derivatives and spot trading activity will continue unhindered, as well as Genesis Global Trading.
“While we have made significant progress in refining our business plans to remedy the liquidity problems caused by the recent extraordinary challenges in our sectorincluding the default of Three Arrows Capital and the bankruptcy of FTX, a court-based restructuring represents the most effective avenue through which to conserve assets and create the best possible outcome for all Genesis stakeholders,” said Derar Islim , interim CEO of Genesis.
The filing follows months of speculation about whether Genesis would file for Chapter 11 and just days after the Securities and Exchange Commission filed a lawsuit against Genesis and his former partner, Gemini, for the offer and sale of unregistered securities.
In the bankruptcy filing, Genesis listed a $765.9 million loan owed to Gemini.
Other notable claims for compensation include a $78 million loan owed by Donuta high-yield decentralized platform, and a VanEck fund, with a $53.1 million loan.
Gemini co-founder Cameron Winklevoss initially responded to the news on Twitter, writing that Silbert and DCG “continue to refuse to offer creditors a fair settlement.”
“We are preparing to take direct legal action against Barry, DCG and others,” he continued.
Genesis is in talks with the creditors represented by the law firms Kirkland & Ellis and Proskauer Rose, as reported by sources familiar with CNBC.
The bankruptcy joins Genesis alongside other disgraced cryptocurrency exchanges, including BlockFi, FTX, Celsius and Voyager.
The crash of FTX in November stalled the market and caused customers across the cryptocurrency landscape to look for withdrawals.
The Wall Street Journal reported that, following the FTX crash, Genesis sought a $1 billion emergency bailout, but found no interested parties.
The parent company DCG, which owes creditors a growing debt of more than $3 billion, suspended dividends this week, CoinDesk reports.
The contagion of cryptocurrencies
Genesis provided loans to cryptocurrency hedge funds and over-the-counter companies, but a series of bad bets made last year severely hurt the lender and forced him to stop withdrawals on November 16th.
The society based in New York had lent cryptocurrencies to Three Arrows Capital (3AC) and Alameda Research, the hedge fund started by Sam Bankman-Fried and closely tied to his FTX exchange.
3AC filed for bankruptcy in July, in the middle of the “crypto winter”.
Genesis had loaned more than $2.3 billion worth of assets to 3AC, according to court documents.
3AC’s creditors have fought in court to recover even a fraction of the billions of dollars that the hedge fund controlled.
Meanwhile, Alameda was integral to the demise of FTX.
Bankman-Fried has repeatedly denied having knowledge of any fraudulent activity within its network of companies, but is unable to provide a substantive explanation for the multi-billion dollar hole. He was arrested in December and was released on $250 million bail ahead of his trial, which begins in October.
Genesis had a $2.5 billion exposure to Alameda, but the position closed in August.
Following FTX’s bankruptcy in November, Genesis reported approximately $175 million of Genesis assets they were “stuck” on the FTX platform.
Genesis’ financial spiral laid the wider empire bare DCG di Silbert.
The parent company was forced to shoulder Genesis’ $1 billion liability stemming from the bankruptcy of 3AC. In a subsequent letter to investors, Silbert disclosed an additional $575 million loan from Genesis to DCG for undisclosed investment purposes.