Crypto Lender Genesis Files for Bankruptcy, Ensnared by FTX Collapse

The bankruptcy marks the end of an era in which the lending of crypto assets fueled trades by both individual and institutional investors chasing high yields. A big drop in crypto prices that began in late 2021 led to the collapse of many companies that depended on that business model. Genesis held on longer than others. Crypto lenders Celsius Network LLC and

Voyager Digital Ltd.

filed for bankruptcy in July. 

The firm filed for bankruptcy protection alongside Genesis Global Capital LLC and Genesis Asia Pacific Pte. Ltd., two subsidiaries. Genesis’s derivatives and spot trading subsidiary, custody business and its brokerage arm Genesis Global Trading aren’t included in the filing and continue client trading operations, it said. 

Genesis’s undoing is an example of how the November collapse of crypto exchange giant FTX has rippled through the industry. Genesis lent at least hundreds of millions of dollars to the trading firm Alameda Research, an FTX affiliate, The Wall Street Journal previously reported.

In its filing, Genesis Global Capital said it had more than 100,000 creditors and between $1 billion and $10 billion in assets and liabilities. Genesis Global Holdco and Genesis Asia Pacific each had between $100 million and $500 million in assets and liabilities. 

Genesis said it was having “ongoing, productive discussions” with the advisers of its creditors and its parent company Digital Currency Group to find a way to “preserve assets and move the business forward.”

Genesis said it hopes to reach a solution for its lending business, which paused redemptions and new loan originations on Nov. 16 after it couldn’t meet customer withdrawal requests in the wake of FTX’s collapse. 

The company said it has more than $150 million in cash on hand, which will provide “ample liquidity” to help its business operate and support the restructuring process.

In some ways, Genesis is like a bank. In normal times, it takes deposits from customers, promising a high return. It lends those deposits out to hedge funds and others at an even higher rate. The borrowers often use the funds, usually in the form of different coins and tokens, to speculate on moves in cryptocurrency markets.

The company’s lending desk had $2.8 billion in active loans at the end of the third quarter, according to Genesis financial statements. That was down from $11.1 billion the year before, when cryptocurrencies were still booming.

Cracks started to show at Genesis when crypto prices plunged last summer. Genesis had lent heavily to the crypto hedge fund Three Arrows Capital, with its loans to the fund amounting to about $2.4 billion last year, according to court documents. The loans weren’t fully collateralized. Three Arrows filed for bankruptcy last summer.

The company’s problems deepened with the collapse of FTX. Some of Genesis’s loans to Alameda were collateralized with a cryptocurrency created by Alameda, the Journal previously reported. The value of that token, FTT, cratered after the FTX collapse, making the coins nearly worthless.

The company has made two rounds of layoffs since August and has been contemplating a bankruptcy filing since it halted withdrawals in November. 

“While we have made significant progress refining our business plans to remedy liquidity issues caused by the recent extraordinary challenges in our industry, including the default of Three Arrows Capital and the bankruptcy of FTX, an in-court restructuring presents the most effective avenue through which to preserve assets and create the best possible outcome for all Genesis stakeholders,” Derar Islim, interim chief executive of Genesis, said in a statement on Thursday. 

Genesis also did business with the crypto exchange Gemini. Under a program called Gemini Earn, customers of Gemini lent their crypto assets to Genesis in exchange for interest payments. Both Genesis and Gemini paused customer withdrawals shortly after the collapse of FTX. At the time, the earn program had some 340,000 users and about $900 million in assets. 

Barry Silbert, the chief executive of Digital Currency Group, and Gemini co-founder

Cameron Winklevoss

have traded barbs on Twitter about who is responsible for the repayment of the assets owed to Gemini users.

The Securities and Exchange Commission last week sued Genesis Global Capital and Gemini, alleging that the earn program is a security that violated investor-protection laws.

“This is a crucial step towards us being able to recover your assets,” Mr. Winklevoss said in a tweet shortly after Genesis’s bankruptcy filing. 

Write to Vicky Ge Huang at [email protected] and Caitlin Ostroff at [email protected]