Crypto lending unit of Genesis files for US bankruptcy

Jan 20 (Reuters) – The lending unit of crypto firm Genesis filed for U.S. bankruptcy protection from creditors on Thursday, toppled by a market disruption along with the likes of exchange FTX and lender BlockFi.

Genesis Global Capital, one of the largest crypto lenders, froze customer redemptions on November 1[ads1]6 after FTX stunned the financial world with its bankruptcy, raising concerns that other companies could implode. The company is owned by the venture capital company Digital Currency Group (DCG).

Genesis’ lending unit said it had both assets and liabilities in the range of $1 billion to $10 billion and estimated it had more than 100,000 creditors in the filing with the US Bankruptcy Court for the Southern District of New York.

Genesis Global Holdco, the parent group of Genesis Global Capital, also filed for bankruptcy protection, along with another lending unit Genesis Asia Pacific.

Genesis Global Holdco said in a statement that it would consider a potential sale or an equitization transaction to pay creditors and that it had $150 million in cash to support the restructuring.

It added that Genesis’ derivatives and spot trading, broker-dealer and custody businesses were not part of the bankruptcy process, and would continue their client trading operations.

Genesis’ bankruptcy filing is the latest in a cascade of crypto failures and severe job cuts triggered by falling prices last year.

Genesis was already locked in a dispute with Gemini Trust Co, founded by identical twin cryptocurrency pioneers Cameron and Tyler Winklevoss, former US Olympic rowers. The two firms are battling over a crypto-lending product called Earn that they jointly offered.

The Winklevoss twins have said Genesis owed more than $900 million to about 340,000 Earn investors. On January 10, Cameron Winklevoss asked to remove Barry Silbert as CEO of Digital Currency Group.

About an hour after the bankruptcy filing, Cameron Winklevoss tweeted that Silbert and Digital Currency Group continued to deny creditors a fair deal.

“Unless Barry (Silbert) and DCG come to their senses and make a fair offer to creditors, we will be filing a lawsuit against Barry and DCG immediately,” Winklevoss said in his tweet thread.

Genesis and Gemini were charged by the US Securities and Exchange Commission on January 12 with illegally selling securities to investors through the Earn program. Tyler Winklevoss called the complaint disappointing.

Genesis brokers digital assets for financial institutions such as hedge funds and asset managers and had nearly $3 billion in total active loans at the end of the third quarter, down from $11.1 billion a year earlier, according to its website.

Last year, Genesis extended $130.6 billion in crypto loans and traded $116.5 billion in assets, according to its website.

The two biggest borrowers were Three Arrows Capital, a Singapore-based crypto hedge fund, and Alameda Research, a trading firm closely linked to FTX, a source told Reuters. Both are undergoing bankruptcy proceedings.

Three Arrows’ debt to Genesis was taken over by parent company Digital Currency Group (DCG), which then filed a claim against Three Arrows. DCG’s portfolio companies also include crypto asset manager Grayscale and news service CoinDesk.

Crypto lenders, acting as the de facto banks, flourished during the pandemic. But unlike traditional banks, they are not required to hold capital cushions. Earlier this year, a lack of collateral forced some lenders – and their customers – to take big losses.

Reporting by Tom Hals in Wilmington, Delaware and Akanksha Khushi; Editing by Lananh Nguyen, Clarence Fernandez and Kim Coghill

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