Thread by @AndreasSteno

Last week I summarized the FTX-implosion and its ripple down effect. The uncovering of grossly negligent behavior by the new J.P. Morgan was the epicenter of what has become a tidal wave in crypto

Now Crypto’s biggest lender, Genesis, seems to be taking in water

A thread 1/n

Back in 2013, Genesis became the first OTC Bitcoin lending desk – now they are the largest.
Its parent company, Digital Currency Group (DCG), is owned by the billionaire Barry Silbert and they own major figures in the space; Genesis, CoinDesk, Foundry, Luno, and Greyscale.

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Genesis certainly wasn’t going to miss out as the market continued its stratosphere-trajectory.
Just have a look at these numbers, and I am sure you will get an idea…

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Genesis wasn’t hesitant lending out money in the pursuit of greater return – hey, that is what your conventional bank does, albeit with greater caution I hope – and among their debtors was Three Arrows Capital.

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In fact, Genesis was the biggest creditor to 3AC totaling $2.4 bn. As the loan turned sour Genesis then filed a $1.2 bn claim against 3AC. Enter DCG; They assumed the claim and left Genesis in the clear.

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While Fortune might favor the brave, another saying goes; “misfortunes never come singly”. The latter applied to Genesis, who wasn’t home safe just yet. Their large exposure to Babel, who themselves took a hit, was the final straw and in August CEO Michael Moro resigned

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The fact that Genesis was used by numerous platforms offering TREMENDOUS returns cause implications for the entire industry. If a platform offers yield, they most likely have partnered up with Genesis.

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Yield farming, mining… all swell when things are on the up. But now it seems reality has struck.
So how does this ‘scheme’ work? 1) I hand my tokens to X, 2) X passes them to Genesis 3) Genesis lend my tokens to a fund 4) the fund borrows from Genesis…

Sounds familiar?

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As long as Genesis’ debtors can meet their obligations, then smiles all round. BUT, things can only work for so long. Once the situation turns south people loose their money. Businesses cashing in big time on these schemes weren’t too fond of proclaiming the associated risks

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Yesterday, the lending division of Genesis ‘temporarily’ suspended redemptions and new loan originations in the wake of the FTX-debunk. The unit known as Genesis Global Capital serves an institutional client base and had $2.8 bn in total active loans.

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But why all the fuzz about Genesis? Major retail accounts as well as institutions (CeFi) have felt in safer hands opting in for Genesis’ custody service. The fact that they have served institutional investors, looking to earn yield, doesn’t make matters better.

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So, how will this end? The question really is whether DCG will be able to raise sufficient funds to bail out Genesis – as they did when 3AC went belly-up. I wonder who they will try to woo. Who will take on the risk, given the current state in Crypto? I wouldn’t

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#dkmedier #dkbiz

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