Genesis Global Capital is reportedly laying the groundwork for a potential bankruptcy after several unsuccessful talks with creditors.
Update Jan. 20, 2023, 05:05 UTC: Genesis filed for bankruptcy. The prices of most major cryptocurrencies have fallen slightly since the news
The crypto lending arm of Genesis Trading could file for voluntary bankruptcy as several negotiations between itself, its parent company Digital Currency Group, and Genesis’ creditors reach a deadlock.
Genesis Plans Could Change After Continued Discussions
The lender has reportedly failed to drum up liquidity to meet existing creditor requirements. People familiar with the matter told Bloomberg that the company’s intentions could change pending the outcome of ongoing discussions. DCG declined to comment, while Genesis hadn’t responded to requests for comment.
Most notable among the lender’s creditors are customers of Gemini Earn, an interest-bearing account offered by Gemini exchange. Genesis earns yield for 34,000 Earn customers by lending their $900 million in crypto deposits to other entities. Gemini takes up to a 4% cut on any interest earned.
Genesis Global Trading was stung by the fall of Singapore hedge fund Three Arrows Capital which owed the lender $2.4 billion. Despite liquidating Three Arrows’ position, Genesis paused withdrawals and loan originations in mid-November 2022 in the face of tightening liquidity.
Genesis also held additional funds on the Bahamian exchange FTX, which filed for bankruptcy around the same time, rendering the funds inaccessible.
Last week, DCG suspended dividend payments to maximize its present liquidity. It is also reportedly selling off assets to generate cash flow.
Gemini and DCG Continue to Exchange Blows
Genesis has been locked in a very public battle with Gemini co-founders Cameron, and Tyler Winklevoss after the lender paused customer withdrawals on Nov. 16, 2022, citing liquidity issues.
On Jan. 2, 2022, Cameron Winklevoss penned an open letter to DCG CEO Barry Silbert, accusing him of feathering his own nest at the expense of Earn customers.
About a week later, Winklevoss wrote another open letter, this time to the board of DCG. In the letter, the Gemini co-founder alleged that DCG had misled the public into thinking that it had injected the necessary liquidity into Genesis to help the lender pay its creditors.
According to Silbert, DCG assumed the $1.2 billion owed to Genesis from the Three Arrows fallout via a promissory note. However, Winklevoss pointed out that the promissory note does little to help the lender create the short-term liquidity needed to satisfy creditors.
Compounding woes for both companies, the SEC recently charged Genesis and Gemini for offering its Earn accounts as unregistered securities.
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