Genesis Claims $5.1B in Liabilities in First-Day Bankruptcy Filing

According to bankruptcy court filings submitted by interim CEO Derar Islim, cryptocurrency lending firm Genesis held $5.1 billion in liabilities in the weeks following its withdrawal halt last November.

In his first-day motion in the United States Bankruptcy Court for the Southern District of New York, Islim detailed Genesis' financial situation prior to its restructuring. Genesis HoldCo, Genesis Global Capital LLC, and Genesis Asia Pacific PTE. LTD filed for Chapter 11 bankruptcy protection late Thursday, becoming the third crypto business to be swept up in the immediate aftermath of FTX's downfall.

Those entities may have been less harmed by direct losses to FTX and sister company Alameda than by the “run on the bank” that Islim claimed their failure triggered. Customers requested repayment of $827 million in loans, pushing Genesis' lending units to halt withdrawals.

“At the same time, Holdco's corporate parent, Digital Currency Group (DCG), and its various subsidiaries, including DCG International Investments Ltd., were impacted by the market turmoil and did not have the liquidity to repay the Company on certain loans, adding pressure to the Debtors' balance sheets,” Islim explained.

At least part of the liquidity crisis started months earlier, thanks to Genesis' $1.2 billion loss to crypto hedge fund Three Arrows Capital (3AC), which went bankrupt in the summer of 2022. That loss was incurred by the Genesis Asia Pacific unit (which also declared bankruptcy), which was in charge of Genesis' financing relationship with 3AC. According to the filing, at the time of 3AC's demise, Genesis had $2.4 billion in outstanding debts to the fund, of which Genesis was only able to recover half.

DCG took much of the risk last year, exchanging a 10-year promissory note for Genesis' $1.2 billion in claims against 3AC. That note is currently at the core of DCG's public feud with cryptocurrency exchange Gemini over the exchange's yield product Earn, with Gemini being Genesis' largest creditor, with over $700 million in debt.

The bankruptcy proceedings, according to Islim, “incentivize all stakeholders to work rapidly toward a consensual resolution that avoids the costs and uncertainty of litigation.”

According to Islim, Genesis continues to operate the majority of its non-lending activities. This includes its derivatives, trading, and custody divisions, which are all held in distinct legal organizations that did not declare bankruptcy.

Prior to the bankruptcies of FTX and 3AC, the first significant domino in this crypto death spiral was the May implosion of the terraUSD (UST)-luna ecosystem, which vaporized tens of billions of dollars in cash. Genesis now joins BlockFi, Voyager, Celsius, and other companies whose demise may be linked back to that occurrence.

“The collapse of luna and UST, followed by the liquidation of 3AC, heralded the start of a new 'crypto winter' and a growing industry-wide aversion to doing business with digital asset businesses,” Islim said.

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