Cryptocurrency lender Genesis told clients that it is suspending redemptions and new loan originations following the collapse of crypto exchange FTX.
The swift demise of FTX, which filed for bankruptcy last week, created unprecedented turmoil for Genesis, causing the company’s lending arm to be unable to meet all withdrawal requests, the company told clients on a 16 November call. The company said it would deliver a plan next week for its lending business.
Derar Islim, the interim chief executive, read from a statement, and Genesis officials didn’t take questions from clients afterwards, according to people familiar with the call. The call lasted only a few minutes, they said.
Genesis also said via Twitter that it has hired advisers in the industry to explore all options.
Genesis had $2.8bn in active loans outstanding at the end of September, down 43% from $4.9bn at the end of June, the company said in its recent third-quarter report.
READ FTX staff vent their anger as collapse leaves them in shock
The company has also been hurt by its involvement with Three Arrows Capital, a crypto hedge fund that filed for bankruptcy this summer. Genesis previously lent $2.4bn to Three Arrows, according to court documents. Genesis’s parent company, Digital Currency Group, has a $1.2bn claim against the bankrupt hedge fund.
The Wall Street Journal previously reported that Genesis had loans outstanding to Alameda Research, an affiliated trading firm of FTX, with FTX’s own cryptocurrency used as collateral.
Genesis previously said via Twitter that it hedged and sold collateral, resulting in a total loss of about $7m across all counterparties, including Alameda. The company also said that its derivatives business has about $175m in locked funds in the firm’s FTX trading account.
“We have taken the difficult decision to temporarily suspend redemptions and new loan originations in the lending business,” a Genesis spokesperson said 16 November. “We are working diligently to shore up the necessary liquidity to meet our lending client obligations.”
In August, Genesis laid off 20% of its 260-person workforce amid a restructuring that also saw the departure of then-chief executive Michael Moro.
Write to Caitlin Ostroff at firstname.lastname@example.org
This article was published by The Wall Street Journal, a fellow Dow Jones Group title