Contagion in the crypto markets continues to spread, following the complete collapse of the crypto exchange FTX.
On Wednesday, Nov 16, the lending arm of Genesis, a trading desk for professional investors, announced that it was halting withdrawals and new loan originations. Genesis has $2.8 billion in outstanding loans, and primarily offers loans to institutions. But it also offers crypto savings accounts to retail customers.
The lending arm of Genesis, named Genesis Global Capital, offers loans to customers with crypto as collateral. Its former competitors Celsius and BlockFi used to rehypothecate collateral on loans, meaning that they would lend out collateral instead of keeping it locked. It is unclear, as yet, whether Genesis Global Capital did the same. In a tweet, Genesis said that the market turbulence following FTX’s collapse had triggered run on its lending arm, which lacked the liquidity to meet “abnormal withdrawal requests”.
“Today Genesis Global Capital, Genesis’s lending business, made the difficult decision to temporarily suspend redemptions and new loan originations,” Amanda Cowie, vice president of communications and marketing at DCG, told CoinDesk. “This decision was made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion.”
The news came a day after the crypto lender BlockFi revealed that it was preparing to file for bankruptcy, after it could no longer be saved by FTX, which had signed bailout deals with several flailing crypto companies over the summer. Earlier in 2022, CoinDesk reported that Genesis had lost hundreds of millions of dollars lending to overleveraged companies like the hedge fund Three Arrows Capital, which borrowed recklessly and imploded, and the lender Babel Finance, which entered into a restructuring process earlier this year.
Derar Islim, the interim CEO of Genesis, said that the trading and crypto custody arm of Genesis would remain unaffected.
Genesis is owned by Digital Currency Group (DCG), a venture capital firm that also owns CoinDesk and the crypto investing firm Grayscale Investments. DCG said, in a statement, that Genesis’s freeze on lending wouldn’t affect any of its other wholly owned subsidiaries.