Saturday, December 10, 2022
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Genesis lending freeze dries up liquidity for crypto institutions

Genesis, a cryptocurrency lending platform specializing in institutional services, announced on Tuesday that it was “temporarily” suspending the opening of new loans. A situation caused by “unprecedented market turmoil” associated with the drop in FTX, “resulting in abnormal withdrawal requests” that exceed its liquidity, the company explains in a press release, which specifies that it will present a plan “next week” for its lending activity and does not exclude the possibility of seeking “new liquidity”.

According to data provided by Genesis, the platform managed the equivalent of $2.8 billion in active loans at the end of Q3. quarter of 2022. This figure was $11 billion a year ago. The company says its cash and derivatives trading and securities custody businesses “remain fully operational.”

Already weakened by Terra

On November 10, the day before FTX and Alameda Research were announced to be put into US bankruptcy, Genesis disclosed that it had $175 million in funds locked up with FTX. Its parent company Digital Currency Group had announced an emergency injection of $140 million.

The fall of FTX seems to act as another leaf for players already weakened by the collapse of the Terra-Luna ecosystem in May, the consequences of which greatly contributed to the fall of Three Arrows Capital (3AC) that Genesis was exposed to for. . According to the 3AC bankruptcy filing, Genesis filed a $1.2 billion claim against the now-insolvent fund, of which Genesis was the largest creditor with a $2.36 billion loan. Digital Currency Group had also absorbed Genesis’ losses related to this exposure.
Liquidity at risk

Along with Alameda Research, Genesis is one of the main liquidity providers in the crypto market, including Wintermute and Amber Group, which have also announced that they have funds blocked at FTX, which could have a “significant impact” on liquidity flows in the crypto market. crypto market writes Kaiko, a company specializing in crypto data.

In a simplified way, to generate returns, institutions deposit their cryptos with Genesis, which then lends them to a fund. So if a player like Genesis runs into difficulties, institutions may find themselves unable to return their cryptos to their customers. The Gemini platform, for example, has announced that it will halt payouts on its lending platform due to the difficulties encountered by Genesis. Dozens of centralized companies around the world use or have used Genesis services to generate returns for their clients.

Kaiko notes that in normal times, liquidity falls “in times of volatility” in the crypto market, where market makers are in a logic of risk management to “avoid toxic flows”. But after Alemada Research’s fall, Kaiko has seen a drop in liquidity over the past week “much larger than any previous decline in the market.” The decline of other key liquidity-providing players would accentuate this dynamic and, in particular, will cause returns to fall a little further.

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