Genesis’ Lending Arm, Gemini Earn, Halt Withdrawals as FTX Contagion Spreads

Genesis’ Lending Arm, Gemini Earn, Halt Withdrawals as FTX Contagion Spreads

• Genesis Global Capital has suspended redemptions and new loan originations in the wake of the bankruptcy of FTX.
• Genesis Global Trading, the broker-dealer of the lending unit, remains fully operational.
• In response to the news, crypto exchange Gemini suspended its Genesis-powered Gemini Earn program.
• Circle Yield, which also relies on Genesis, shows a 0% in yield on USDC.

The lending arm of crypto investment bank Genesis has suspended withdrawals and new loan originations. This comes as the bankruptcy of FTX continues to send ripples across the crypto industry.

Genesis said on Wednesday that its lending unit, known as Genesis Global Capital, got first hit by the downfall of Three Arrows Capital, a hedge fund that went under in July. Since then, the company had been derisking its book and “shoring up [its] liquidity profile and the quality of [its] collateral”, the firm said on Twitter.

However, in the wake of the blowup of FTX, Genesis saw “abnormal withdrawal requests” that eventually “exceeded [their] current liquidity” and forced it to halt redemptions.

Genesis Global Capital is known to be one of the top destinations for institutional clients. According to its website, the firm originated $8.4 billion in loans in the third quarter of this year. It has $2.8 billion in total active loans as of Q3 of this year.

Last week, Genesis revealed that it has about $175 million stuck in its trading account on FTX. In response, Digital Currency Group, the owner of Genesis, Grayscale, and other crypto companies, offered a $140 million cash infusion to strengthen Genesis’ balance sheet.

The crypto investment giant said that its lending unit’s broker-dealer subsidiary Genesis Global Trading is “independently capitalized.” They added that it operated separately from its other businesses, including the lending subsidiary. Genesis reassured that spot and derivatives trading and custody businesses remain “fully operational”.

“We have hired the best advisors in the industry to explore all possible options. Next week, we will deliver a plan for the lending business. We’re working tirelessly to identify the best solutions for the lending business, including among other things, sourcing new liquidity,” Genesis said, adding that its top priority now is to serve its clients. Hours after Genesis halted withdrawals, Gemini, an American crypto exchange, suspended its Gemini Earn product, which relies on Genesis. The exchange then went down for some time before going back up.

Circle, the issuer of the second largest stablecoin, USDC, is also affected by Genesis’ illiquidity. Its Circle Yield program, powered by Genesis, currently shows a 0% yield on USDC deposits.

On the Flipside

• It’s unclear whether Genesis will resume redemptions and new loan originations.
• It’s also unknown how exactly Genesis is exposed to FTX.

Why You Should Care

Genesis is one of the largest entities in crypto. Some speculate that if Genesis has deep issues that have minimal chances of being solved, its negative effect on the market and the industry, in general, might be even bigger than FTX.

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