Another One Prepares To Bite the Dust: Crypto Firm Genesis Halts All Withdrawals as the FTX Saga Looms Large [Update: Circle and Gemini Add to the Fallout]

Rohail Saleem
Genesis FTX

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.

The FTX saga is a poisoned gift for the crypto sphere that just keeps on giving. After BlockFi and a host of other crypto firms halted withdrawals over the past few days, the crypto lending firm Genesis has now halted all of the withdrawals at its lending arm.

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To wit, the lending arm of Genesis, formally known as Genesis Global Capital, has now suspended all redemptions and loan creations. The firm had $2.8 billion in total active loans at the end of Q3 2022. Last week, Genesis revealed that its derivatives arm had about $175 million in funds that were trapped within the now-defunct FTX.

The owner of Genesis, Digital Currency Group, explained the rationale behind this move in the following words:

"Today, Genesis Global Capital, Genesis's lending business, made the difficult decision to temporarily suspend redemptions and new loan originations. This decision was made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion."

Meanwhile, the blowback from FTX’s default keeps growing. The crypto hedge fund Ikigai has revealed that the majority of its assets are currently trapped within FTX. Similarly, Sino Global Capital has now confirmed that its exposure to FTX ran in “mid-seven figures.” SoftBank has also written down its $100 million investment in FTX. Moreover, BlockFi has so far only commented that it has a “significant exposure” to the SBF’s exchange. We expect this list to keep growing over the next few days as DeFi firms slowly disclose the true extent of their synergies with FTX.

FTX's founder, Sam Bankman-Fried (SBF), ran a Ponzi scheme to the benefit of Alameda Research, the trading arm of his once-sprawling crypto empire. In essence, FTX transferred its native FTT tokens to Alameda at dirt-cheap prices while, at the same time, the exchange inflated FTT's value by utilizing a part of its revenues to burn a fraction of the token's circulating supply. Alameda then used its FTT tokens as collateral to borrow client funds from FTX, which were then used to place leveraged bets. This gig ended once Alameda's exposure to the FTT token became public knowledge, prompting Binance to start dumping its own FTT stash, collapsing the token's price in the process. This resulted in a bank run as clients tried to exit the Ponzi scheme-promoting exchange, eventually resulting in FTX declaring bankruptcy last week.

Update 1: The Issuer of USDC Stablecoin, Circle, Is Now Apparently in Trouble After Genesis Halted Withdrawals

Bitcoin Magazine’s Dylan LeClair has pointed out that Circle just reduced the short-term yield on the USD Coin (USDC) from 0.25 percent yesterday to just 0 percent today in the wake of Genesis’ announcement.

As of the 14th of November, Circle had an exposure of $247 million to unspecified counterparties. LeClair believes that one of those counterparties is Genesis.

This assertion has now been confirmed by Circle in a tweet. The crypto firm, nonetheless, contends:

 “Total Circle Yield customer loans outstanding are $2.6 million as of 11/16/22 and are protected by robust collateral agreements.”

As illustrated in the tweet below, Circle's USDC is currently experiencing "massive whale activity."

 

Update 2: Gemini has Halted Withdrawals for Five Days

Genesis is a lending partner of the crypto exchange Gemini. The company has now published the following statement:

We are aware that Genesis Global Capital, LLC (Genesis) — the lending partner of the Earn program — has paused withdrawals and will not be able to meet customer redemptions within the service-level agreement (SLA) of 5 business days. We are working with the Genesis team to help customers redeem their funds from the Earn program as quickly as possible. We will provide more information in the coming days.

The question emerges: who's next?

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