According to bankruptcy court records submitted by interim CEO Derar Islim, crypto lending company Genesis owned $5.1 billion in liabilities in the days after its deposit halt in November.
In his initial move in the United States, Islim gave a summary of Genesis' financial situation prior to its reorganization in bankruptcy proceedings for the Southern District of New York. By applying for bankruptcy protection through Chapter 11 late on Thursday, three of Genesis' entities—Genesis HoldCo, Genesis Global Capital LLC, and Genesis Asia Pacific PTE. LTD—became the third cryptocurrency company to be affected by the rapid aftereffects of FTX's collapse.
Due to Genesis' $1.2 billion stake to cryptocurrency hedge fund Three Arrows Capital (3AC), which failed in the summer of 2022, at least some of the liquidity crisis started months before. That loss originated from the Genesis Asia Pacific division, which oversaw Genesis' financing arrangement with 3AC and filed for bankruptcy. Based on the complaint, Genesis had $2.4 billion in unpaid loans to the fund at the moment of 3AC's bankruptcy, of which Genesis was really only able to recoup half.
Last year, DCG took on a large portion of that risk by exchanging a 10-year promise to pay for Genesis' $1.2 billion in claim against 3AC. This note is currently the focus of a public dispute between DCG and the cryptocurrency exchange Gemini over the return product Earn. Gemini is Genesis' demonstrates the significance, with debt totaling over $700 million.
The bankruptcy proceedings, according to Slim, “incentivize all parties to work expeditiously toward a consensual resolution that avoids the costs and unpredictability of litigation.”
The majority of Genesis' non-lending companies are still active, according to Islim. That also applies to its derivatives, trading, and custody divisions, each of which is housed within a different legal organization that refrained from declaring bankruptcy.
The explosion of the terraUSD (UST)-luna ecosystem in May, which saw the algorithm stablecoin's destruction vaporize tens of billions of dollars in money, was the first big domino in this crypto death spiral before the failures of FTX and 3AC. Now that insolvency can be linked to that incident, Genesis joins BlockFi, Voyager, Celsius, and other companies in that category.
The demise of Luna and UST, followed by the dissolution of 3AC, “signaled the start of a new crypto winter” and a growing industry-wide unwillingness to engage in commerce with businesses that deal in digital assets, according to Islim.
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