Axios Pro: Fintech Deals

January 20, 2023

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Happy Friday, readers.

Situational awareness: Sullivan & Cromwell is at the center of the FTX bankruptcy story this morning, with a hearing on whether the crypto company can retain the law firm's services scheduled in a Delaware bankruptcy court.

1 big thing: Genesis files for bankruptcy

DCG founder & CEO Barry Silbert

DCG founder and CEO Barry Silbert / Photo: Joe Buglewicz/Bloomberg via Getty Images

Crypto lending firm Genesis Global Capital filed for bankruptcy late Thursday, two months after halting customer withdrawals.

Why it matters: Crypto contagion continues to take down high-profile companies in the sector, with Genesis’s bankruptcy following in the footsteps of Voyager Digital, Celsius and FTX.

Driving the news: Genesis — part of Barry Silbert’s crypto conglomerate Digital Currency Group (DCG) — filed in the Southern District of New York.

  • The filing listed more than 100,000 creditors with aggregate liabilities between $1.2 billion and $11 billion, according to the filing.
  • Major creditors include Gemini, which has a $766 million loan outstanding, investment firms Mirana and Coincident Capital, and crypto startups Babel Finance and Donut.
  • The firm has approximately $150 million in cash, $500 million in digital assets, and $385 million in shares in brokerage accounts, Genesis says.

Between the lines: Genesis had exposure to both crypto hedge fund Three Arrows Capital (3AC) and exchange FTX, but it claims a “run on the bank” is what led the collapse.

  • Last June, it had $2.4 billion worth of loans pledged to 3AC, and when it became clear that it would not be paid back, it foreclosed on $1.2 billion worth of collateral.
  • Soon after, DCG backstopped the loss with a $1.1 billion promissory note to Genesis.
  • Genesis also had $175 million worth of exposure to FTX when that company went bankrupt. Once again, DCG stepped in to cover those losses, putting $140 million in equity into Genesis in November.
  • It also had $37 million in outstanding loans to FTX sister trading firm Alameda Research. However, due to its hedging its exposure to the underlying assets in the Alameda loans, its loss there was only $7 million, the filing shows.
  • When FTX collapsed, Genesis says in the filing that it received calls on its loans that amounted to about $827 million, creating a liquidity crunch that ultimately led to its bankruptcy.

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