Genesis Global Capital, has temporarily suspended the ‘Earn’ program on its protocol. Following the implosion of FTX and the locking up of over $175 million, Gemini’s lending arm faces a liquidity crisis and is actively seeking new capital, Its parent company Digital Currency Group commented. The decision was made in response to the loss of confidence in FTX. If Gemini Exchange is really collapsing now, in retrospect we should not have been surprised that the same guys who tried to steal Facebook from Mark Zuckerberg would now be on the wrong side of its exchange failing.
The challenge on Proof of Reserves is that there is no easy way to prove its authenticity so we’re forced to take their word. Apparently, Proof of Reserves is a good start, but it needs to be coupled with Proof of Liabilities in order to be useful. I want to believe the twins don’t want legal face off for misleading clients. Last week, when the FTX situation was deteriorating, I tried redeeming my staked coins on Gemini, unfortunately it’s been pending ever since. Although, it’s a little exposure, how about some who have chunk of funds stuck on the platform.
Gemini tweeted; All customer funds held on the Gemini Exchange are held 1:1 and available for withdrawal at any time, this communique is presumably not true. If this is really the end for Genesis, this could be more impactful than FTX. FTX hurt liquid funds and consumers, Genesis impacts nearly every company in Crypto. For those who aren’t familiar, Genesis started as the first OTC Bitcoin desk in 2013. They’re now crypto’s largest lending desk. Genesis is part of DCG, Barry Silbert’s holding company that owns CoinDesk, Foundry, Genesis, Grayscale, and Luno.
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Gemini exchange fully back online; all customer funds held on the Gemini exchange are held 1:1 and available for withdrawal at any time.
— Gemini (@Gemini) November 16, 2022
At the height of the market, Genesis was moving size. In, Q4 2021 it had $50B in loan originations, $12.5B active loans, $31B spot volume traded and $21B derivatives was traded on the protocol, then 3AC Liquidation happened, Genesis was the biggest creditor to 3AC having lent them a whopping $2.4 billion. Genesis, filed a $1.2B claim against 3AC in Q2 2022, DCG stepped in and assumed the $1.2B claim leaving Genesis with no outstanding liabilities tied to 3AC.
Genesis, had large exposure to Babel Finance, the CeFi platform that got hit hard in the June unwind. In August, it longtime CEO Michael Moro resigned alongside top executives of the institution. By Q3 2022, their numbers had fallen drastically to $8.4B in loan originations, $2.8B active loans, $18.7B spot volume traded and $9.6B derivatives traded. Still, everyone felt like they were crypto’s safest counter-party.
Why is the downfall of Genesis so bad for the Cryptocurrency Industry
Dozens of companies like Gemini use Genesis to help their consumers earn yield. If you’re a CeFi platform that offers yield, you probably use Genesis. Using some rough numbers and simplifying the process a bit, here’s how it works; You give your Crypto to Gemini ? Gemini gives your crypto to Genesis ? Genesis lends your crypto to a fund ? the fund borrows from Genesis X+2% ? Genesis gives Gemini X+1% ? Gemini gives you X% – You now earn yield. This only works if the counter-parties that Genesis lent to can actually repay their borrow. If Genesis can’t get their crypto back, they can’t give the crypto back to Gemini (or insert any other crypto CeFi platform), which means Gemini can’t give you your crypto.
Beyond that, nearly every Crypto whales and Institutional entity’s invest on Genesis. Instead of earning yield on BlockFiand Gemini International, they stake directly on Genesis to earn yield. Now those institutions, family offices, and whales can’t get their crypto back. This is why Genesis halting withdrawals is so bad. They sit at the direct center of Crypto Capital Markets, They custody funds, They help institutions earn yield, They are the yield product for CeFiplatforms.
- Relatively, FTX has issued a press statement distancing itself from trolling tweets posted by Sam Bankman Fried, ex CEO of FTX.
(1/3) Statement from John Ray, Chief Restructuring Officer and CEO of @FTX_Official, regarding Mr. Bankman-Fried’s recent public statements:
— FTX (@FTX_Official) November 16, 2022