Genesis Trading, a large crypto financial services group, has halted withdrawals in its lending unit, blaming “unprecedented market turmoil” caused by the collapse of Sam Bankman-Fried’s corporate empire.
The group said on Wednesday that its decision to suspend redemptions and issuance of new loans came after it encountered “abnormal withdrawal requests that exceeded our current liquidity.”
The problems in Genesis are the latest sign of that Bankman Fried’s FTX fails A cryptocurrency exchange and trading company, Alameda Research, are sending shock waves through the crypto industry. The US House of Representatives Financial Services Committee on Wednesday announced a hearing on the FTX crash and its impact on the digital asset industry.
Genesis plays a major role in the fixed income markets for digital assets. The New York-based group allows customers to lend their coins for returns of up to 10 percent, with similar services being provided to groups including exchange operator Gemini. On the other side of the ledger, it lends coins to institutions such as hedge funds and family offices.
Genesis has secured $2.8 billion in “active loans” as of the third quarter of 2022, according to its website.
“This decision was made in response to the severe market turmoil and loss of industry confidence caused by FTX’s implosion,” said Genesis’s parent company, Digital Currency Group, owned by billionaire Barry Silbert.
The suspension of withdrawals by Genesis has also raised concerns about its business partners. Gemini, a crypto exchange and custodian run by twins Tyler Winklevoss and Cameron Winklevoss, said on Wednesday that it was “aware” of the problems facing Genesis.
The two companies share a “earning” product that provides customers with interest payments for lending their crypto assets, with Genesis being the lead lending partner.
“We’re working with the Genesis team to help customers get their Earn refund as quickly as possible,” Gemini said.
Another partner in Genesis, encryption Luno, the platform, said its customers’ assets are safe, adding that it has “previously taken steps to ensure that customers can retain access to savings wallet funds in the event that Genesis withdrawals cannot be made.”
Genesis said it has hired “the best advisors in the industry to explore all possible options” and will present a plan for the lending business next week. “We are working tirelessly to identify the best solutions for the lending business, including, among other things, the provision of fresh liquidity,” she said.
Max Bonin, founder of B2C2 digital asset market maker, said on Twitter that the company “would like to extend an offer to buy loans from [Genesis Trading’s] Book to alleviate the current liquidity shortage”.
Last week, Genesis said it had $175 million in funds stuck in FTX. On Friday, just hours before Bankman-Fried’s Exchange declared bankruptcy, DCG poured $140 million into Genesis. It marks the second lifeline that the Genesis parent company has provided this year.
Genesis was hit hard by the failure of Three Arrows Capital, the Singapore-based crypto hedge fund that filed for bankruptcy in July when its bets on bitcoin and other cryptocurrencies soured. Court documents showed that Genesis lent Three Arrows $2.4 billion in secured loans. Over the summer, DCG assumed Genesis’ entire $1.2 billion claim against Three Arrows.
Genesis’ trading and custody business remains fully operational, Genesis said, adding that its trading arm is “capitalized and operated independently – and separate from all other Genesis entities.”
DCG, which also owns crypto asset manager Grayscale Investments and news site CoinDesk, said there was “no impact on the business operations of DCG and our other wholly owned subsidiaries.”
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