The group said on Wednesday that its decision to suspend acquisitions and new lending came after it faced “abnormal withdrawal requests that exceeded our current liquidity”. The problems at Genesis are the latest sign that the failure of Bankman-Fried’s FTX crypto exchange and Alameda Research, a trading firm, is sending shockwaves through the crypto industry. On Wednesday, the US House Financial Services Committee announced a hearing on the FTX collapse and its impact on the digital asset industry. Genesis plays a key role in digital asset fixed income markets. The New York-based group allows clients to lend their coins in exchange for returns of up to 10%, while also providing similar services for groups including exchange operator Gemini. On the other side of the ledger, it lends coins to institutions like hedge funds and family offices. Genesis had $2.8 billion of “active loans” as of the third quarter of 2022, according to its website. “This decision was made in response to the extreme market volatility and loss of industry confidence caused by the FTX collapse,” said Genesis’ parent company, Digital Currency Group, which is owned by billionaire Barry Silbert. Genesis’ suspension of withdrawals also raised concerns for its business partners. Gemini, a crypto exchange and custodian run by twins Tyler Winklevoss and Cameron Winklevoss, said on Wednesday that it was “aware” of the problems facing Genesis. The two companies are partnering on an “Earn” product that provides customers with interest payments for lending their crypto assets, with Genesis as the primary lending partner. “We are working with the Genesis team to help customers cash out their Earn program as quickly as possible,” said Gemini. Another Genesis partner, crypto platform Luno, said its customers’ assets are safe, adding that it had “previously taken steps to ensure that customers can maintain access to Savings Wallet funds in the event that they are not Genesis withdrawals possible.’ Genesis said it had hired “the best advisers in the industry to explore all possible options” and would deliver a plan for the lending business next week. “We are working tirelessly to identify the best solutions for lending activity, including, but not limited to, sourcing new liquidity,” it said. Max Boonen, founder of digital asset maker B2C2, said on Twitter that the company “wishes to extend an offer to buy loans from [Genesis Trading’s] book on mitigating the current liquidity shortfall’. Genesis said last week it had committed $175 million in capital to FTX. On Friday, hours before the Bankman-Fried exchange filed for bankruptcy, DCG injected $140 million into Genesis. It marked the second lifeline given to Genesis by its parent company this year. Genesis was hit hard by the failure of Singapore-based crypto hedge fund Three Arrows Capital, which filed for bankruptcy in July when its bets on bitcoin and other cryptocurrencies fizzled. Court documents showed that Genesis had loaned Three Arrows $2.4 billion in unsecured loans. Over the summer, DCG took over Genesis’ entire $1.2 billion claim against Three Arrows. Genesis’ trading and custody businesses remain fully operational, Genesis said, adding that its trading arm was “independently capitalized and operated — and separate from all other Genesis entities.” DCG, which also owns crypto asset manager Grayscale Investments and news site CoinDesk, said there was “no impact on the business operations of DCG and our other wholly-owned subsidiaries.” Video: Cryptocurrencies: how regulators lost control
