No One Will Escape the FTX Fallout

genesis Global Trade, one of the oldest and most storied cryptographic institutions, is in dire straits. In November, following the implosion of crypto exchange FTX, the company's lending unit was forced to freeze customer withdrawals, which was never a good sign. Almost two months later, Genesis is reportedly on the verge of bankruptcy.

Although Genesis has not publicly said that bankruptcy is imminent (Derar Islam, interim CEO, He says he remains “focused on finding a solution”), the company reportedly laid off 30 percent of its workforce this week, the latest sign of its poor financial health.

Founded in 2013, Genesis has become the center of daily operations for the crypto industry. In 2021 alone, the company issued $131 billion in loans and set up $116.5 billion in transactions. To finance these loans, Genesis borrows from individuals and institutions that hold large amounts of coins, also known as whales, who receive a share of the proceeds in return.

While the cryptocurrency bandwagon sped along, Genesis was on a roll, but its luck ran out in 2022. The lender has been in trouble since July, when hedge fund Three Arrows Capital collapsed, taking $1.2k with it. million of the $2.36 billion that he had borrowed of the signature Genesis again found itself on the wrong end of a collapse in the fall; when FTX declared bankrupt On November 11, the company lost $175 million stored on the exchange.

Digital Currency Group (DCG), parent company of Genesis, swooped in with bailouts on both occasions. Despite the attendance, the “unprecedented market turmoil” created by the FTX situation forced Genesis to freeze withdrawals and start seek emergency funds. But like FTX, no rescue package for the Genesis has materialized.

The effervescence of the cryptocurrency market in 2021 spread fear of missing out among investors who attracted large sums of money. But that FOMO is long gone, replaced by a suspicion of both the promises and accounting practices of big crypto companies in light of the fraud allegations at FTX.

VC investment in crypto is drying up, according to a recent article published by the market data house PitchBook. After a “breakout year” in 2021, in which $21 billion of capital flooded into the industry, appetite for crypto investment is rapidly collapsing. By the third quarter of 2022, funding was down 34.3% year-on-year and deal volume had fallen to a two-year low.

In the case of Genesis, investors have been put off by a lack of clarity about the size of the cash injection needed to plug the hole, says David Bailey, CEO of Genesis. bitcoin magazine, who also leads an activist group representing the interests of investors in the Grayscale Bitcoin Trust, a subsidiary of DCG. He describes the shortfall as "massive and of unknown scope."

Brad Harrison, who leads the team behind the Venus decentralized lending protocol, paints a similar picture. A Genesis bankruptcy would not be a surprise after the “tectonic” events that have shaken the crypto industry over the past year, he says. But when it comes to the details, "we're all guessing what goes on behind closed doors."