Key Takeaways
- A prepackaged bankruptcy deal for Genesis is being negotiated with creditors
- Genesis owes creditors over $3 Billion, which includes $900 Million to Gemini customers
Crypto lender Genesis is gearing up to file for bankruptcy protection sometime this week, according to people familiar with the matter. Reportedly, a prepackaged bankruptcy deal for Genesis is being negotiated with creditors and would include cash and equity in Digital Currency Group(DCG)-Genesis’ parent company.
A prepackaged bankruptcy plan indicates the two sides would come to a restructuring agreement before the filing, and later, the deal would be made final in bankruptcy court.
Genesis first showed signs of a liquidity crunch right after the implosion of sam Bnakman Fried’s FTX in November. Genesis suspended withdrawals following FTX’s bankruptcy filing. Genesis, which is facing heavy debt right now, owes creditors over $3bn, which includes $900mn to customers of Gemini- Cameron and Tyler Winklevoss-owned exchange and €280mn to Dutch exchange Bitvavo.
The root cause of the liquidity issues can be traced back to the collapse of the crypto venture capital firm Three Arrows Capital (3AC)in 2022. Genesis faced million in dollars in losses following 3AC’s implosion. Genesis lent $2.36 billion to 3AC, which has now gone bust.
Genesis Trading’s parent company DCG has assumed some of the liability owed by 3AC in order to ensure Genesis has adequate capital to continue its operations.DCG has a $1.1 billion promissory note related to liabilities from Genesis related to the 3AC’s default.
Gemini cofounder Cameron has engaged in a public feud with Barry Silbert-CEO of Genesis parent company DCG. Cameron alleges that Genesis Global Capital and its parent company, DCG, owe Gemini’s clients $900 million. He further accused Silbert of using the $1.675 billion Cameron claimed Digital Currency Group “owes” Genesis and using it for purposes that helped other DCG ventures instead of repaying creditors.
The latest development comes amid US Securities and Exchange Commission (SEC) charging Genesis and Gemini for allegedly selling unregistered securities in connection with the Gemini earn program, supported by Genesis’ lending activities.SEC alleges that Genesis suspending withdrawals left some 340,000 Gemini Earn customers and about $900 million in crypto in limbo.
In late 2022, Genesis Global Capital confirmed hired investment bank Moelis & Co. to explore how to navigate its way through liquidity issues.
