WSJ News Exclusive | Crypto Lender Genesis Considers Bankruptcy, Lays Off 30% of Staff

Genesis is working with investment bank

Moelis

& Co. to evaluate its options for the future, including a potential chapter 11 filing, said some of the people.

A Genesis spokeswoman said that the firm is working with its advisers “to preserve client assets and move the business forward.”

The crypto lender has become the latest digital asset firm to struggle for survival. Last year was marked by a series of crypto bankruptcies as the Federal Reserve boosted interest rates, deflating the most speculative investments. Blowups in the little-regulated sector trickled down to other companies, demonstrating the interconnectedness of the nascent industry. The Fed has signaled it will continue raising rates. Investors are bracing for more pain in crypto.

Genesis suffered steep losses from loans it supplied to the now-defunct trading firm Alameda Research and crypto hedge fund Three Arrows Capital. Both Alameda and Three Arrows filed for bankruptcy last year.

“As we continue to navigate unprecedented industry challenges, Genesis has made the difficult decision to reduce our head count globally. These measures are part of our ongoing efforts to move our business forward,” a spokeswoman for Genesis said.

Last summer, Genesis cut 20% of its 260-person workforce—and its chief executive

Michael Moro

stepped down—after Three Arrows was forced to liquidate. Genesis had given the hedge fund a $2.4 billion loan with 50% collateral. Genesis has disagreed with this characterization, and Mr. Moro has said the collateral was closer to 80%.

The lender also struggled to keep leaders in its risk management team. Most recently, Michael Patchen, who served for only a few months as its chief risk manager, abruptly resigned in October, according to his LinkedIn profile.

Its woes deepened with the collapse of FTX. Genesis lent at least hundreds of millions of dollars to FTX’s sister trading firm Alameda Research before its implosion in November, according to people familiar with the matter.

Genesis paused loan originations and redemptions on Nov. 16. As a result of Genesis’s move, crypto exchange Gemini has $900 million of its customers’ funds trapped in Genesis. Genesis used Gemini as a partner for its yield program.

Genesis has sought lifelines in the form of an emergency loan of $1 billion from investors.

The company also tried to raise capital from crypto exchange Binance and private equity giant

Apollo Global Management.

Moelis was brought on last year by Genesis to help the company shore up its finances and figure out a road map for its future, according to a company statement.

Gemini and other creditors to Genesis have attempted to recoup owed funds in recent weeks. Tensions between heads of both companies erupted into an open dispute on Twitter earlier this week.

Derar Islim, interim chief executive of crypto brokerage Genesis Global Trading, said Wednesday that the company needs more time to resolve the financial crisis brewing in its lending business and has made progress in reducing costs in its business lines.

Genesis is owned by the crypto conglomerate Digital Currency Group, which also operates crypto asset manager Grayscale Investments, crypto news outlet CoinDesk, mining and staking firm Foundry, crypto exchange Luno, data platform TradeBlock, wealth management firm HQ and DCG Real Estate.

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