Crypto lender Genesis had sought emergency loan of $1 Billion
A run on deposits in cryptocurrency after FTX's collapse has led to a liquidity crunch
Cryptocurrency lender Genesis was seeking an emergency loan of $1 billion from investors before it told clients it was suspending redemptions this week, as the shockwaves from FTX’s collapse continue to reverberate through the crypto industry.
A confidential fundraising document viewed by The Wall Street Journal states that Genesis needed access to the credit facility by 10 a.m. Monday, citing a "liquidity crunch due to certain illiquid assets on its balance sheet." The firm didn’t get the money.
"There is ongoing run on deposits driven mainly by retail programs and partners of Genesis (i.e., Gemini Earn) and institutional clients testing liquidity," the document says. Gemini Earn is a yield-bearing product offered by Gemini, a cryptocurrency exchange.
A spokeswoman for Genesis said the document was prepared over the weekend and is no longer current. The firm is having "very positive conversations" with potential investors to shore up its liquidity, she added.
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"Genesis had been exploring all possible options amidst the liquidity crunch resulting from the FTX news," the spokeswoman said. "After reviewing a number of options, we made the difficult decision to temporarily suspend redemptions and new loan originations in the lending business so that we can identify the best solution and outcome possible for clients."
In a brief call with clients on Wednesday, Genesis interim chief executive Derar Islim disclosed that the firm’s lending arm was unable to meet all withdrawal requests. Genesis said via Twitter that it has hired advisers in the industry to explore all possible options.
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Genesis’ troubles come amid the widening fallout from cryptocurrency exchange FTX’s sudden collapse last week. The lender had loans outstanding to Alameda Research, an affiliated trading firm of FTX, with FTX’s own cryptocurrency used as collateral, the Journal has previously reported.
Genesis was dealt a blow earlier this year by the implosion of Three Arrows Capital, a crypto hedge fund that filed for bankruptcy this summer. Genesis had lent $2.4 billion to Three Arrows, according to court documents. Digital Currency Group, the parent company of Genesis, has a $1.2 billion claim against the bankrupt hedge fund.
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The document viewed Wednesday offered prospective investors the potential of a controlling ownership in Genesis, an ownership stake in one of Digital Currency Group’s subsidiaries, or a minority stake in the holding company.
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Digital Currency Group’s subsidiaries include crypto publication CoinDesk, bitcoin-mining firm Foundry and crypto asset manager Grayscale.