- Genesis Trading filed for bankruptcy protection after suffering crippling losses from the collapses of FTX and hedge fund Three Arrows Capital.
- Genesis is a part of Barry Silbert's Digital Currency Group, which has seen mounting problems in recent months.
- Some of Genesis' largest clients include Circle, which operates stablecoin USD Coin, and Gemini, which is backed by the Winklevoss twins.
Crypto lender Genesis filed for Chapter 11 bankruptcy protection late Thursday night in Manhattan federal court, the latest casualty in the industry contagion caused by the collapse of FTX and a crippling blow to a business once at the heart of Barry Silbert's Digital Currency Group.
The company listed over 100,000 creditors in a "mega" bankruptcy filing, with aggregate liabilities ranging from $1.2 billion to $11 billion dollars, according to bankruptcy documents.
Three separate petitions were filed for Genesis' holding companies. In a statement, the company noted that the companies were only involved in Genesis' crypto lending business. The company's derivatives and spot trading business will continue unhindered, as will Genesis Global Trading.
"We look forward to advancing our dialogue with DCG and our creditors' advisors as we seek to implement a path to maximize value and provide the best opportunity for our business to emerge well-positioned for the future," Genesis interim CEO Derar Islim said in a statement.
The filing follows months of speculation over whether Genesis would enter bankruptcy protection, and just days after the Securities and Exchange Commission filed suit against Genesis and its onetime partner, Gemini, over the unregistered offering and sale of securities.
Genesis listed a $765.9 million loan payable from Gemini in Thursday's bankruptcy filing. Other sizeable claims included a $78 million loan payable from Donut, a high-yield, decentralized platform, and a VanEck fund, with a $53.1 million loan payable.
Gemini co-founder Cameron Winklevoss initially responded to the news on Twitter, writing that Silbert and DCG "continue to refuse to offer creditors a fair deal."
"We have been preparing to take direct legal action against Barry, DCG, and others," he continued.
"Sunlight is the best disinfectant," Winklevoss concluded.
Genesis is in negotiations with creditors represented by law firms Kirkland & Ellis and Proskauer Rose, sources familiar with the matter told CNBC. The bankruptcy puts Genesis alongside other fallen crypto exchanges including BlockFi, FTX, Celsius, and Voyager.
FTX's collapse in November put a freeze on the market and led customers across the crypto landscape to seek withdrawals. The Wall Street Journal reported that, following FTX's meltdown, Genesis had sought an emergency bailout of $1 billion, but found no interested parties. Parent company DCG, which owes creditors a mounting debt of more than $3 billion, suspended dividends this week, CoinDesk reported.
The crypto contagion
Genesis provided loans to crypto hedge funds and over-the-counter firms, but a series of bad bets made last year severely damaged the lender and forced it to halt withdrawals on Nov. 16.
The New York-based firm had extended crypto loans to Three Arrows Capital (3AC) and Alameda Research, the hedge fund started by Sam Bankman-Fried and closely linked to his FTX exchange.
3AC filed for bankruptcy in July in the midst of the "crypto winter." Genesis had loaned over $2.3 billion worth of assets to 3AC, according to court filings. 3AC creditors have been fighting in court to recover even a sliver of the billions of dollars that the hedge fund once controlled.
Meanwhile, Alameda was integral to FTX's eventual demise. Bankman-Fried has repeatedly denied knowledge of fraudulent activity within his web of companies, but remains unable to provide a substantial explanation for the multibillion-dollar hole. He was arrested in December, and is released on a $250 million bond ahead of his trial, which is set to begin in October.
Genesis had a $2.5 billion exposure to Alameda, though that position was closed out in August. After FTX's bankruptcy in November, Genesis said that about $175 million worth of Genesis assets were "locked" on FTX's platform.
Genesis' financial spiral has exposed Silbert's broader DCG empire. The parent company was forced to take over Genesis' $1 billion liability stemming from 3AC's collapse. In a later letter to investors, Silbert disclosed an additional $575 million loan from Genesis to DCG for undisclosed investing purposes.
DCG pioneered publicly traded trusts, allowing investors to hold bitcoin and other currencies in their portfolio without direct exposure. Grayscale Bitcoin Trust's discount to net asset value widened significantly last year as confidence in the conglomerate waned.