[Feature] Is Genesis the Next One to Fall?

Today, a rumor about "Genesis going bankrupt tonight" was discussed across various social platforms by experienced crypto KOLs, citing solvency problems. If the news is true, Genesis may dump ETHE and GBTC to repay lenders.

There seemed to be a lot of negativity and pessimism towards Genesis. Why is Genesis suddenly rumored to be going bankrupt?

Regarding this, Coinlive conducted in-depth research into Genesis, and found that the rumors of bankruptcy are not baseless.

Origin

Genesis has extremely close ties with Three Arrows Capital (3AC). According to blockchain data, Genesis provided 2.36 billion US dollars in loans to Three Arrows Capital. In June, Genesis attempted to recover some of the loans by initiating arbitration proceedings against 3AC at the American Arbitration Association (AAA) in New York. Genesis stopped the arbitration after hiring consultancy firm Teneo to oversee the 3AC liquidation in late June.

On July 19, Teneo, the consultancy firm entrusted by Genesis, uploaded a 1,157-page court document which showed the filing of a $1.2 billion claim against the already bankrupt Three Arrows Capital. According to information in the filing report, Genesis’ parent company, Digital Currency Group (DCG), has assumed some of Genesis’s responsibilities in the case.

Turmoil

The crypto contagion from Three Arrow collapse continued to affect Genesis despite the lawsuit it filed. Many resignations took place, including Michael Moro, CEO of Genesis in August, sales and transactions Co-head Matt Ballensweig in September and chief risk officer Michael Patchen in October, along with a 20 percent layoff across the company.

In addition to the resignation of key personnel, the volume of transactions and loans had also fell sharply, as was announced in their third quarter report, Genesis loan volume fell to $8.4 billion in July-September 2022, down 79 percent in the third quarter, compared to $40.4 billion in the second.

Further Complications

In addition to the company's personnel and financial issues, Genesis was also replaced and rejected by its close partner, Grayscale.

Instead, Grayscale launched a new broker-dealer, Grayscale Securities, as an authorized participant in its crypto trust product, regulatory filings show. The new unit will replace Genesis, with a transition period effective Oct. 3.

This document also indirectly hinted that Genesis was struggling.

Furthermore, the collapse of Three Arrows impacted not only Genesis, but also DCG, their parent company. The collapse was unexpected and sudden. Due to the close ties between Genesis and 3AC, DCG had to scramble to reorganize the entire company structure of their daughter company. After the reorganization, DCG transferred its chief operating officer Mark Murphy to president for Genesis and laid off 10% of its staff.

A DCG spokesperson said: "We have recently made a series of internal adjustments to DCG to position it for its next phase of growth, including streamlining our divisions while enhancing our leadership team."

A Secondary Impact

After suffering from a series of complications, Genesis was once again hit by a secondary impact from the market.

Who would have thought that FTX, the industry's second-ranked exchange, an acquisition madman in the currency circle, and a radical pioneer in the industry, collapsed instantly.

According to blockchain data: FTX owed more than $5 billion in cash, $1.41 billion in Bitcoin, $800 million in USDT, and $670 million in ETH, as well as loans to BlockFi, Genesis and LayerZero, totaling nearly $9 billion.

When Alameda’s balance sheet was revealed, Genesis had to come up with an official announcement to prove to the public that they were still solvent. They mentioned their derivatives department still had $175 million locked in its FTX trading account, but this would not affect their market-making operations.

DCG also announced that it would inject $140 million into Genesis to strengthen Genesis’ balance sheet and consolidate its position in the encryption market.

Summary

Overall, Genesis, which has been severely impacted by the market throughout 2022 from 3AC to FTX collapse, has indeed reached a precarious state.

In the current market environment, even the most outrageous things may happen where Genesis, one of the largest active loan companies (est 2.8 billion worth), can collapse. We must remain vigilant and keep an eye on them as well as the markets.