Crypto brokerage Genesis is suspending redemptions and new loan originations in its lending business after facing what it described as “unusual withdrawal requests” following the collapse of FTX.
The withdrawal requests, according to interim chief executive officer Derar Islam of Genesis Global Capital, exceed the current liquidity in the lending arm. Islam said New York-based Genesis has hired advisors to explore all possible options, including raising new funding, and will present a plan for its lending business next week.
The move will only affect the lending business, according to Islam, who said that Genesis’ spot and derivatives trading and custody businesses will “remain fully operational.”
Some of the largest originator lenders include crypto exchange Gemini, which offers users a product to generate yield through origination, according to its website. On Wednesday, Gemini announced that it is working with Genesis to help customers redeem their funds from the Earn product “as quickly as possible”.
FTX’s sudden plunge into bankruptcy is spreading through crypto markets, with panicked customers rushing to pull their Property from other platforms. As a counterparty to many in the sector, Genesis’s financials have been closely watched as gauges of industry strength or as signs of potential contagion.
Genesis is one of the oldest and best-known cryptocurrency brokers, providing trading and custody services to professional investors in digital assets. Over the years it had established itself as one of the largest cryptocurrency lenders, allowing the fund and other market makers to borrow dollars or virtual currency to leverage their trades.
The lending business has shrunk dramatically this year, with loan originations falling from $44.3 billion in the first three months of the year to $8.4 billion in the third quarter.
Last week, Genesis said it would receive a $140 million equity infusion from its parent company, Barry Silbert’s Digital Currency Group, after disclosing that its derivatives business had $175 million in funds locked in an FTX trading account. The lending business was previously hit by exposure to bankrupt crypto hedge fund Three Arrows Capital, to which it loaned $2.4 billion.
According to court filings, Three Arrows put about half of the needed capital against that loan. DCG assumed the outstanding liabilities and is now the largest creditor of the failed hedge fund, which was run by Su Zhu and Kyle Davis.
Origin has experienced a wave of senior executive departures this year and has been cutting staff. In August, the company laid off 20% of its then 260-person workforce and appointed Islam as interim CEO, replacing Michael Morrow. Later that month, Noelle Acheson said she was leaving her position as head of market insights.
In September, Matthew Ballenswig stepped down as co-head of sales and merchandising and said he would move to an advisory position. In October, chief risk officer Michael Patchen left after three months in the role.
Digital Currency Group also controls Grayscale Investments, which provides the Grayscale Bitcoin Trust, or GBTC, the largest Investment Vehicle in the crypto market. The trust is trading at about a 40% discount to the market value of bitcoin.
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