Major crypto provider Genesis Global Capital suspended redemptions of customer funds in its lending business on Wednesday, citing the failure of crypto exchange FTX. This affects a company founded by the Winklevoss twins.
Major crypto provider Genesis Global Capital on Wednesday suspended redemptions of customer funds in its lending business, citing the failure of crypto exchange FTX.
Genesis, which also offers crypto trading and custody services through a subsidiary that has not been affected, had a total of $2.8 billion in active loans at the end of the third quarter, according to the company's website. Last year, it originated $130.6 billion in crypto loans and traded $116.5 billion in assets, the company said.
Locked Savings Product
At the same time, crypto exchange Gemini, founded by the Winklevoss twins, says it is unable to meet customer redemptions from its yield-generating Gemini Earn program. In the case of Gemini Earn, Gemini's website lists only one accredited borrower that has passed the verification process: Genesis Global.
The suspension at Genesis has no impact on business operations, the company told «Reuters». Several other crypto firms, including Crypto.com and stablecoin Tether, said Wednesday they have no exposure to Genesis.
Gemini Earn gives investors up to 8 percent interest when they lend their cryptocurrencies, including Bitcoin, Ether, or stablecoins pegged to the dollar. It is a type of product that is widely used in the crypto world and functions similarly to high-interest savings accounts but contains far fewer safeguards.
Well-Known Crypto Broker
Whether Gemini Earn's customers, who are significant lenders to Genesis, will ever get their money back remains to be seen. Much now depends on Genesis itself, where all possible options are currently being explored, including new funding.
Genesis' lending business was already in trouble when crypto hedge fund Three Arrows collapsed. The company had lent $2.4 billion to the now-bankrupt fund, which was run by Su Zhu and Kyle Davies.
Capital Infusion Needed
Last month, Genesis reported that lending in the third quarter fell 80 percent from the previous three-month period and that most of the company's other businesses had also seen significant declines.
Then last week, Genesis announced that it would receive a $140 million capital infusion from its parent, Barry Silbert's Digital Currency Group, after disclosing that its derivatives business had $175 million locked up in an FTX trading account.
Little Risk Protection
Genesis, one of the oldest and best-known crypto brokers, was itself a big player in the crypto lending business. This case adds to the crisis of confidence that began with the collapse of asset prices and the implosion of FTX.
It also shines a harsh light on the role of yield products in cryptocurrencies, which have often been marketed and popularized as less risky bank-like alternatives. To that extent, few players are protected from the risks. Moreover, it is a blow to the ambitions of regulation-friendly firms like Gemini, whose fortunes are largely tied to the mainstream acceptance of cryptocurrencies.
