Genesis Stops Crypto Lending in Light of FTX Collapse

Genesis’s lending division halted withdrawals and new loan applications following FTX’s crash, Genesis CEO Derar Islim announced Wednesday.

Its lending division has a clientele of institutional investors and a loan portfolio of $2.8 billion as of Q3 of 2022, the company’s website states.

The brokerage division of Genesis is separate in capital and operation from its credit arm, as Islim pointed out. Other kinds of financial services provided by Genesis will not be affected and will remain fully accessible.

According to Islim, Genesis is evaluating a number of solutions for the credit arm, among them finding new sources of liquidity. The Genesis team will present its plan to customers in the near future, he added.

According to Amanda Cowie, manager at Digital Currency Group (DCG), the company that owns Genesis, the move stemmed from the severe market turmoil and a perceived loss of trust caused by FTX’s collapse.

She also added that the decision would not affect the operations of DCG as well as its associated companies.

The move comes following the collapse of Sam Bankman-Fried’s FTX and Alameda Research earlier this month. According to Islim, the huge drop in FTT tokens led to withdrawals that were beyond liquidity reserves of Genesis at the time.

A week ago, the company disclosed that its lending unit had about $175 million in FTX funds. Consequently, DCG decided to strengthen Genesis’ financial position through a $140 million equity investment.

It is important to note that halting lending operations could have repercussions across the cryptocurrency market. Genesis lent backends for a variety of trading platforms offering yield, including Gemini Earn, an interest-bearing platform offering up to 8.05%. 

As a result of Genesis’ decision, Gemini informed users that it would no longer process Earn redemptions without specifying any timeline for when they would be reactivated. Gemini said it would not affect standard withdrawals.

Following that, Tether, the issuer of stablecoins, stated Wednesday that it does not hold investments in Gemini Earn or Genesis. “Tether is continuing to operate as usual.”

As well, Galaxy Digital, a crypto-financial service company, said in a publication on Wednesday that it was not involved in Genesis’ loan activities or Gemini’s Earn program. The company recently disclosed having stakes to FTX of approximately $76.8 million, both in fiat and crypto.