Yet another crypto company bites the dust, and FTX is partly to blame.
Genesis’ sinking ship
Genesis, a crypto lender and wholly owned subsidiary of Digital Currency Group (DCG), is reportedly on the brink of filing for bankruptcy after negotiations between the firm and its creditors have failed to produce a resolution. According to Bloomberg, which cites sources close to the situation, Genesis is preparing to file for bankruptcy protection as soon as this week, following the collapse of cryptocurrency exchange FTX, which left holes in the balance sheets of many other crypto industry firms, and a $3 billion shortfall for Genesis.
Warnings not heeded
Genesis first warned of the possibility of filing for bankruptcy protection in November, after it suspended client withdrawals. Despite offering several proposals, Genesis and parent company DCG have been unsuccessful in reaching an agreement with creditors, according to Bloomberg.
The Block also reported that Genesis and its creditors are currently negotiating a Chapter 11 bankruptcy plan, which would include a forbearance period of between one and two years on payments, and cash and equity from DCG as part of the agreement.
FTX’s downfall has had a ripple effect in the crypto industry, with many firms being affected by the contagion that has spread since early November. Genesis said that it had $175 million worth of cryptocurrency locked up in FTX, which is currently undergoing its own Chapter 11 bankruptcy process.
Crypto exchange Gemini claims that Genesis holds more than $900 million worth of customer funds from its Gemini Earn program, which allows users to earn interest on deposited assets. However, users have been unable to access these funds since Genesis suspended withdrawals.
This has led to a public feud between Gemini co-founders Tyler and Cameron Winklevoss, and DCG founder and CEO Barry Silbert, with the Winklevoss brothers demanding Silbert’s resignation. The public spat followed several weeks of negotiations between the firms and creditors.
SEC Charges Genesis and Gemini
Last week, the United States Securities and Exchange Commission charged both Genesis and Gemini with offering unregistered securities in relation to Gemini Earn. On January 4, Genesis Interim CEO Derar Islim said that the firm needed additional time to try and find a solution to its liquidity crisis. The following day, Genesis cut 30% of its staff to reduce costs and stabilize the company amid the crisis.
DCG is considering selling assets from its venture portfolio, which includes stakes in more than 200 crypto projects, such as crypto exchange Coinbase and USD stablecoin issuer Circle, to cover the Genesis shortfall, according to the Financial Times.
The crypto market is no stranger to bankruptcy, with the collapse of crypto firms such as MT Gox and QuadrigaCX leaving investors and customers with significant losses. The Genesis bankruptcy filing, if it does happen, would be a significant blow to the crypto industry,One question on everyone else’s mind at the moment is if Binance will be the next to fall.