​Genesis and Gemini Earn halt withdrawals due to liquidity issues

The lending arm of crypto investment bank Genesis Global Trading is temporarily suspending redemptions and new loan originations in the wake of FTX’s collapse, Interim CEO Derar Islim told customers on a call Wednesday.

The unit, known as Genesis Global Capital, serves an institutional client base and had $2.8 billion in total active loans as of the end of the third quarter of 2022, according to the company’s website.

Genesis Trading, which acts as Genesis Global Capital’s broker/dealer, is independently capitalized and operated separately from that lending unit, Islim said. He added that Genesis’ trading and custody services remain fully operational.

Islim told the participants on the call that Genesis is exploring solutions for the lending unit, including finding a source of fresh liquidity. He said Genesis intends to detail its plan to clients next week.

Genesis owner Digital Currency Group (DCG) is also the parent company of CoinDesk.

"Today Genesis Global Capital, Genesis's lending business, made the difficult decision to temporarily suspend redemptions and new loan originations. This decision was made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion," said Amanda Cowie, vice president of communications and marketing at DCG.

"This decision impacts the lending business at Genesis and does not affect Genesis’s trading or custody businesses. Importantly, this decision has no impact on the business operations of DCG and our other wholly owned subsidiaries," Cowie added.

The decision follows a punishing period for the industry after this month’s implosion of Sam Bankman-Fried’s crypto companies FTX and Alameda Research. Islim said FTX’s dramatic fall had spurred withdrawal requests that exceeded Genesis’ current liquidity.

Last week, Genesis disclosed that its derivatives unit had about $175 million in locked funds in its FTX trading account. As a result, DCG opted to strengthen Genesis’ balance sheet with an equity infusion of $140 million.

The announcement was noted by Gemini, the crypto exchange and custodian that has a partnership with Genesis.

"We are working with the Genesis team to help customers redeem their funds from the Earn program as quickly as possible," Gemini said in a statement. "We are disappointed that the Earn program [service agreement] will not be met, but we are encouraged by Genesis’ and its parent company Digital Currency Group’s commitment to doing everything in their power to fulfill their obligations to customers under the Earn program."

Genesis suffered major losses earlier this year due to the failure of hedge fund Three Arrows Capital (3AC).