Crypto lender Genesis struggles to enable withdrawals for users amid spreading FTX contagion

Genesis, a crypto lending firm, is working on preserving client assets and strengthening liquidity. The FTX contagion spread to venture capital firm Digital Currency Group’s (DCG) venture Genesis. Genesis told users in a letter that it is seeking to avoid a bankruptcy filing and needs weeks to form a plan. 

Also read: FTX exchange collapse, loss of $3.1 billion could have been avoided on one condition

Genesis customers could wait weeks for withdrawals 

Genesis, a US-based crypto lending firm issued a letter to customers on December 7. Derar Islim, the interim CEO of Genesis suggested that the firm’s withdrawals could remain frozen for weeks to come. 

In the letter, the firm states that Genesis is committed to being as “transparent as possible,” with its customers throughout the process. The interim CEO informed users that Genesis is in consultation with experienced advisers and owner Digital Currency Group (DCG). 

Genesis froze withdrawals on November 16, 2022, shortly after FTX exchange’s collapse and bankruptcy filing. Genesis derivatives business has $175 million with FTX exchange that may or may not be recovered. Losing hundreds of millions to the exchange’s collapse, Genesis was hit by the spreading FTX contagion. 

Parent company DCG delivered a $140 million cash infusion to Genesis, however this was not enough to resolve the firm’s liquidity issues. The lending business reportedly sought $1 billion in emergency funds shortly after freezing customer withdrawals. 

The crypto lender failed to raise the funds and reports from experts revealed that Genesis is heading towards bankruptcy for lack of external support. DCG’s crypto lending arm then onboarded restructuring lawyers to avoid bankruptcy and work out a plan to return customer funds. 

Withdrawal freezes in 2022 are followed by bankruptcies

Crypto firms Celsius, Voyager, FTX and BlockFi started with freezing withdrawals and ended up filing for bankruptcy. This has been the trend in the crypto ecosystem in 2022. Genesis is working with a group of experts to fight a similar fate, however the contagion has spread to Gemini Earn. 

Genesis reportedly owes $900 million to Winklevoss twins’ Gemini Earn, a crypto lending product. Users of other arms of Genesis, including its trading and custody services are not impacted and the exchange is working on a solution for the customers of Gemini Earn.

Experts believe DCG could suffer fall out from Genesis’ collapse

Cryptocurrency experts are debating whether Genesis’ collapse could affect parent company Digital Currency Group. Ram Ahluwalia, CEO and co-founder of crypto-native investment advisor Lumida, and Samuel Andrew, crypto author and analyst debated the matter on episode 429 of cryptocurrency podcast ‘Unchained.’

The two firms are facing a range of suboptimal outcomes in the face of massive debt. Ahluwalia and Andrew discussed how Genesis’s withdrawal freeze contributes to the spreading FTX exchange contagion. 

The co-founder of Lumida is of the opinion that Genesis’ lending product needs to be shut down and there is a risk of enforcement action from regulators. It is a challenge for creditors to be made whole after the recent fallout at the crypto lending firm. It remains to be seen whether Genesis’ situation will trigger the collapse of DCG and Winklevoss twin’s Gemini exchange and its lending products. 

Cameron Winklevoss, co-founder of Gemini shed light on the current situation in a recent tweet:

He stresses on finding a resolution for Earn users to redeem their funds after Genesis’ withdrawal freeze.