Genesis, a cryptocurrency lender, filed for Chapter 11 bankruptcy protection in federal court in Manhattan on Thursday evening.
The most recent casualty of the industry contagion triggered by FTX’s demise and a crushing blow to a corporation that was once at the center of Barry Silbert’s Digital Currency Group.
Crypto Genesis Bankruptcy
According to bankruptcy records, the corporation cited over 100,000 creditors in a “mega” bankruptcy case, with total obligations ranging from $1.2 billion to $11 billion dollars.
Genesis cited a $765,9,000,000 loan payable to Gemini in its bankruptcy filing on Thursday. Other substantial claims included a $78 million loan payable from the high-yield, decentralized platform Donut and a $53.1 million loan payable from a VanEck fund.
According to CNBC sources, Genesis is in negotiations with creditors represented by the law firms Kirkland & Ellis and Proskauer Rose. Genesis joins other defunct cryptocurrency exchanges, like BlockFi, FTX, Celsius, and Voyager, in declaring bankruptcy.
The November collapse of FTX froze the market and prompted users across the crypto sector to seek withdrawals. The Wall Street Journal stated that following the collapse of FTX, Genesis requested a $1 billion emergency bailout but found no takers. According to CoinDesk, parent company DCG, which owes creditors more than $3 billion, suspended payouts this week.
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Crypto Contagion
Genesis provided loans to crypto hedge funds and over-the-counter organizations, but a string of poor bets made in 2017 badly harmed the lender, forcing it to cease withdrawals on November 16.
Three Arrows Capital (3AC) and Alameda Research, the hedge fund founded by Sam Bankman-Fried and closely related to his FTX exchange, have received crypto loans from the New York-based firm.
3AC declared bankruptcy in July, during the crypto winter. According to court documents, Genesis had lent 3AC approximately $2.3 billion worth of assets. Creditors of 3AC have fought in court to recoup even a fraction of the billions of dollars once controlled by the hedge fund.
In the meantime, Alameda was instrumental in FTX’s ultimate downfall. Bankman-Fried has consistently denied knowledge of fraudulent behavior inside his network of companies, but he has been unable to offer a plausible explanation for the multibillion-dollar deficit. He was detained in December and released on a $250 million bond before starting his October trial.
Genesis had a $2.5 billion exposure to Alameda before August when the position was closed. After FTX’s bankruptcy in November, Genesis stated that assets worth around $175 million were frozen on FTX’s platform.
The financial decline of Genesis has exposed Silbert’s huge DCG enterprise. Due to 3AC’s bankruptcy, the parent firm was compelled to assume Genesis’ $1 billion liabilities. Silbert announced an additional $575 million loan from Genesis to DCG for unspecified investment reasons in a subsequent letter to investors.
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