Crypto investment bank Genesis Global Trading, owned by the venture capital Digital Currency Group, announced a pause in withdrawals of assets lent to the firm’s brokerage arm, Genesis Global Capital, on Wednesday. The move is now rippling through the company’s multiple trading partners.
Genesis Global Capital pays a yield to clients that deposit cryptocurrency on the platform and holds about US$2.8 billion in such deposits, according to its latest quarterly report through September.
New York-based Genesis Global Trading said its decision follows “abnormal withdrawal requests” which exceeded the current liquidity at Genesis Capital. The announcement makes it the latest crypto related business to face funding shortfalls after cryptocurrency exchange FTX went bankrupt on Nov. 11 and closed accounts. Genesis said the same day it had US$175 million locked in FTX accounts.
The freeze by Genesis Capital quickly spread to its trading partners, such as the cryptocurrency exchange Gemini and South Korea’s GOPAX exchange. Digital Currency Group is the second largest shareholder in GOPAX, the exchange said in an announcement.
Jack frost
The Gemini platform, owned by twins and former Facebook litigants Tyler and Cameron Winklevoss, said Wednesday it would pause withdrawals on its interest-bearing “Earn” program that uses Genesis as a trading partner.
“We are working with the Genesis team to help customers redeem their funds from the Earn program as quickly as possible. We will provide more information in the coming days,” Gemini said.
After the announced pause on Earn, the Gemini exchange went offline temporarily due to an “Amazon Web Services EBS outage,” the company said in a Tweet.
On Thursday, blockchain analytics platform Nansen reported that Gemini saw US$570 million in net outflows over 24 hours, more than any other cryptocurrency exchange, according to Nansen data.
South Korea’s GOPAX exchange on Thursday halted withdrawals and interest payments from their GOFi service, which brokers products from Genesis Global Capital.
GOPAX said it had requested repayment of all assets belonging to GOFi account holders prior to Genesis’s announcement that it will freeze withdrawals.
Seeking funds
Billionaire Barry Silbert, 46, a former investment banker, runs Digital Currency Group, which lists seven main subsidiaries on its website, including Genesis and digital asset manager Grayscale, which oversees $28 billion worth of Bitcoin, Ether and other assets.
The company was founded in 2015 to focus on digital assets and has invested in dozens of crypto companies, according to its website. It operates out of Stamford, Connecticut, in the U.S.
Digital Currency Group had previously assumed liabilities for Genesis’s US$1.2 billion claim against bankrupt crypto hedge fund Three Arrows Capital in July. Three Arrows fell victim like many other businesses at the time to the US$40 billion implosion of the Terra stablecoin and Luna cryptocurrency in May in which it had invested.
The collapse of Terra, which some argue is still rumbling through the industry and is linked to the FTX implosion, has triggered multiple bankruptcies and the fugitive Terra-Luna founder Kwon do-hyung is the subject of an Interpol Red Notice for his arrest.
Digital Currency Group stepped in to provide an emergency US$140 million to Genesis the day FTX declared bankruptcy. That was seemingly insufficient, with Genesis reportedly seeking a new loan of US$1 billion, according to a fundraising document cited by the Wall Street Journal on Friday.
Another potential liquidity lifeline for Genesis appeared from UK-based financial services firm B2C2 Group on Wednesday. B2C2 founder Max Boonen tweeted that the company “wishes to extend an offer to purchase loans from Genesis Trading’s book to alleviate the current liquidity shortfall.”
Binance, the world’s biggest crypto exchange, may be considering a bid for Genesis’ loan assets, according to a Wednesday report from Blockworks that cited unnamed sources familiar with the matter. Binance did not respond to a request for comment from Forkast.