Crypto Lending Unit Genesis Stops Withdrawing Client Funds After FTX Crash

The lending arm, known as Genesis Global Capital, serves an institutional client base and had $2.8 billion in total active loans at the end of the third quarter of 2022, according to the company's website.

However, a division of crypto investment bank Genesis Global Trading is temporarily suspending repayments and issuing new loans in the wake of the FTX crash, interim CEO Derar Islim told clients during a call on Wednesday.

Genesis Trading, which is a broker/dealer for Genesis Global Capital, is independently capitalized and operates separately from the lending arm, Islim said. He added that Genesis trading and custody services remain fully functional.

Islim told the call participants that the company is working on a solution for the lending division, including finding a source of new liquidity. He also added that they intend to tell customers in detail about their next steps next week.

It is worth noting that Digital Currency Group (DCG), the owner of Genesis, is also the parent company of CoinDesk.

“Today, Genesis Global Capital, the lending arm of Genesis, has made the difficult decision to temporarily suspend repayments and new lending. This decision was made in response to the significant market turmoil and loss of industry confidence caused by the FTX explosion,” said Amanda Cowie, vice president of communications and marketing at DCG.

This decision impacts Genesis's business lending but does not impact the company's trading or custodial activities. It is important that the resolution of this issue does not affect DCG's business operations or other subsidiaries that we own,” Cowie added.

The decision comes after a repressive period for the industry following the bankruptcies of Sam Benkman-Fried crypto companies FTX and Alameda Research this month. Islim confirmed that the sharp drop in FTX triggered withdrawal requests that exceeded Genesis' current liquidity.

Last week, Genesis revealed that its derivatives division had about $175 million of blocked funds in its FTX trading account. As a result, DCG decided to bolster Genesis' balance sheet with a $140 million capital injection.

This announcement was flagged by the Gemini cryptocurrency platform, which has a partnership with Genesis.

"We are working with the Genesis team to help clients redeem their Earn funds as soon as possible," Gemini said in a statement. “We are disappointed that the Earn program was not delivered, but we are encouraged by the commitment of Genesis and its parent company, Digital Currency Group, to do whatever it takes to meet our commitment to customers under the Earn program.”

Stablecoin issuer Tether also confirmed in a blog post on Wednesday that it has no connection to either Genesis or Gemini Earn. "Tether is operating as normal," the company wrote.

Crypto-focused financial services company Galaxy Digital (GLXY) also shared a statement saying it has nothing to do with the Genesis lending business and the Gemini Earn program. Galaxy admitted last week that it has about $76.8 million in cash and digital assets in FTX.