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The FTX saga is a poisoned gift for the crypto sphere that just keeps on giving. After BlockFi and a host of other crypto firms halted withdrawals over the past few days, the crypto lending firm Genesis has now halted all of the withdrawals at its lending arm.
GENESIS halting withdrawals.
Why does everyone tell us “we’re solvent”, when they aren’t? pic.twitter.com/lFjj6RLfXT
— minigrogu (@minigrogu) November 16, 2022
To wit, the lending arm of Genesis, formally known as Genesis Global Capital, has now suspended all redemptions and loan creations. The firm had $2.8 billion in total active loans at the end of Q3 2022. Last week, Genesis revealed that its derivatives arm had about $175 million in funds that were trapped within the now-defunct FTX.
The owner of Genesis, Digital Currency Group, explained the rationale behind this move in the following words:
"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."
Meanwhile, the blowback from FTX’s default keeps growing. The crypto hedge fund Ikigai has revealed that the majority of its assets are currently trapped within FTX. Similarly, Sino Global Capital has now confirmed that its exposure to FTX ran in “mid-seven figures.” SoftBank has also written down its $100 million investment in FTX. Moreover, BlockFi has so far only commented that it has a “significant exposure” to the SBF’s exchange. We expect this list to keep growing over the next few days as DeFi firms slowly disclose the true extent of their synergies with FTX.
FTX's founder, Sam Bankman-Fried (SBF), ran a Ponzi scheme to the benefit of Alameda Research, the trading arm of his once-sprawling crypto empire. In essence, FTX transferred its native FTT tokens to Alameda at dirt-cheap prices while, at the same time, the exchange inflated FTT's value by utilizing a part of its revenues to burn a fraction of the token's circulating supply. Alameda then used its FTT tokens as collateral to borrow client funds from FTX, which were then used to place leveraged bets. This gig ended once Alameda's exposure to the FTT token became public knowledge, prompting Binance to start dumping its own FTT stash, collapsing the token's price in the process. This resulted in a bank run as clients tried to exit the Ponzi scheme-promoting exchange, eventually resulting in FTX declaring bankruptcy last week.
Update 1: The Issuer of USDC Stablecoin, Circle, Is Now Apparently in Trouble After Genesis Halted Withdrawals
Circle, the issuer of USDC, has reduced it's rate on short-term lending from 0.25% yesterday to 0% today following the halting of withdrawals from Genesis, as per Internet Archive. pic.twitter.com/qxmrxBGIjj
— Dylan LeClair 🟠 (@DylanLeClair_) November 16, 2022
Bitcoin Magazine’s Dylan LeClair has pointed out that Circle just reduced the short-term yield on the USD Coin (USDC) from 0.25 percent yesterday to just 0 percent today in the wake of Genesis’ announcement.
As of November 14th, it looks as if Circle has $247m worth of exposure to unknown debtors. Counterparties not specified, but w/ the prominence of Genesis, I would bet it is non-zero.
Circle reported no impairment on any of it's outstanding loans balances. https://t.co/a0UY7wMXzi pic.twitter.com/IBRn3ANE0e
— Dylan LeClair 🟠 (@DylanLeClair_) November 16, 2022
As of the 14th of November, Circle had an exposure of $247 million to unspecified counterparties. LeClair believes that one of those counterparties is Genesis.
1/ Circle Yield is an overcollateralized fixed-term yield product. Genesis is a counterparty to Circle in this product. Total Circle Yield customer loans outstanding are $2.6 million as of 11/16/22 and are protected by robust collateral agreements.
— Circle (@circle) November 16, 2022
This assertion has now been confirmed by Circle in a tweet. The crypto firm, nonetheless, contends:
“Total Circle Yield customer loans outstanding are $2.6 million as of 11/16/22 and are protected by robust collateral agreements.”
As illustrated in the tweet below, Circle's USDC is currently experiencing "massive whale activity."
🐳 #Stablecoins and several #altcoins are seeing massive whale activity not seen since May, continuing the large reaction from last week's fallout. $USDC is seeing some large moves, in particular, following the halting of withdrawals from #GeminiEarn. https://t.co/QfmtzYTmiL pic.twitter.com/jBlljSzn7n
— Santiment (@santimentfeed) November 16, 2022
Update 2: Gemini has Halted Withdrawals for Five Days
Genesis is a lending partner of the crypto exchange Gemini. The company has now published the following statement:
We are aware that Genesis Global Capital, LLC (Genesis) — the lending partner of the Earn program — has paused withdrawals and will not be able to meet customer redemptions within the service-level agreement (SLA) of 5 business days. We are working with the Genesis team to help customers redeem their funds from the Earn program as quickly as possible. We will provide more information in the coming days.
The question emerges: who's next?