Genesis Global Capital, the crypto lending division of Genesis Global Trading, has halted withdrawals in the wake of the recent implosion of FTX.
On a Wednesday morning call with investors, the interim CEO of Genesis Global Trading Derar Islim reassured clients that the firm was “independently capitalised” and operates separately from its lending unit. Islim clarified that the company’s trading and custody services remain fully operational.
According to Genesis Global Capital’s Q3 report, the institution had US$2.8 billion in active loans.
On November 9, Genesis tweeted that it had incurred a US$7 million-dollar loss across all of its counterparties including Alameda Research.
In a subsequent comment on the above thread, Genesis reiterated that it had “no material exposure to FTT or any other tokens issued by centralised exchanges.”
The numbers suggest otherwise
However, according to research from Protos, an over-the-counter trading wallet linked to Genesis witnessed a significant volume of FTT tokens pass through it.
Protos explain that the Genesis wallet contained a colossal 30 million FTT tokens on June 11. This number then dipped to 300,000 FTT by June 20. As of November 16, the wallet contained 19,500 FTT, with a value of approximately US$36,000 at the time.
The bulk of the transactions were directed to an address that is widely-believed to be one of the Alameda Research FTX deposit wallets. This suggests that Alameda Research and Genesis had an ongoing relationship that involved large sums of FTT.
These facts imply that Genesis was likely lying about its material exposure to FTX in its statement on November 10.
On November 11, Genesis announced that its derivatives unit had roughly US$175 million in locked funds in its FTX trading account. To alleviate this distress, Genesis’ parent company Digital Currency Group (DCG) deployed US$140 million in capital to Genesis.
DCG is owned by prominent crypto personality Barry Silbert. Notably, DCG is also the parent company of CoinDesk and Grayscale.
Despite receiving this much-needed capital injection from its parent company, the financial contagion had already spread to other firms, namely US-based crypto exchange Gemini.
FTX contagion spreads from Genesis to Gemini
Gemini’s Twitter posted a notice this morning stating that all withdrawals on the ‘Gemini Earn’ product, which allowed investors to earn interest on their crypto holdings, had been halted.
In an attached statement, Gemini explained that the Earn product had been significantly impacted by the company’s relationship with Genesis Global.
“We are aware that Genesis Global Capital — the lending partner of the Earn program — has paused withdrawals and will not be able to meet customer redemptions within the service-level agreement of 5 business days,” Gemini wrote.
“This does not impact any other Gemini products and services,” the blog post assured readers. “All customer funds held on the Gemini exchange are held 1:1 and available for withdrawal at any time.”
While Gemini claimed to be “disappointed” that the Earn program would be out of action, they assured investors that the teams from Gemini and Genesis are allegedly working together to ensure that clients are able to withdraw funds from ‘Earn’ as quickly as possible.
Other major crypto firms have been quick to distance themselves from Genesis and Gemini. On Wednesday, the world’s largest stablecoin provider Tether claimed to have no exposure to either of the companies.
Gemini was founded in 2014 by billionaire identical twins Cameron and Tyler Winklevoss. The Winklevoss twins most recently made headlines for ditching Gemini in pursuit of more creative interests, namely their new rock band Mars Junction. Maybe the twins will be first to hit pause on the music while they unpause operations on their crypto exchange.