The setbacks of the FTX trading platform have not finished making waves. The American broker Genesis Trading is desperately looking for $500 million to survive… and not drag the ecosystem down with it.
For more than two weeks, Web3 only lives around the FTX earthquake. We knew that the former empire of Sam Bankman-Fried (SBF), which includes the investment fund Alameda Research, had close ties with many projects and companies. Little by little, we learn who is really concerned, directly or indirectly.
One of the hardest hit companies is Genesis Trading, which is $500 million short of filing for bankruptcy. However, its potential bankruptcy would have direct consequences, even in France. Indeed, if Coinhouse has suspended withdrawals from its Crypto Passbooksit was because they are managed in part by Genesis.
Unknown in France, Genesis Trading has been part of the crypto ecosystem for many years. Its disappearance will be the conclusion of a catastrophic year 2022 for cryptocurrencies, probably the worst since the creation of Bitcoin (BTC) in 2009.
A giant with feet of clay
Founded in 2013, Genesis Trading is a crypto exchange considered high-end. It is one of the first such companies to be licensed and regulated in the United States, allowing bitcoin to be traded since 2012. Genesis Trading also offers cryptocurrency custody and lending services.
Based in New York, Genesis Trading is what is known as an *over-the-counter or OTC broker. This means that it offers the purchase and sale of cryptocurrencies over the counter. This particularity makes Genesis popular with wealthy investors, mining companies and even institutional investors.
Big players like to use a platform like Genesis because it can easily process high-volume transactions and lend millions of dollars worth of cryptocurrencies. One of the reasons for this is that Genesis requires a number of specific documents in order to open an account, such as company documents or, if applicable, a government ID.
Today, partly because of the FTX affair, Genesis is in danger. However, the links between the broker and the SBF empire are relatively obscure. In fact, we know that Genesis loaned cryptocurrencies to Alameda Research, accepting the FTT token, the native token of FTX, as collateral. However, the amount lent was not made public…and the FTT lost 95% of its value in two weeks.
If the broker is today in a liquidity crisis, it is above all mainly due to the aftershocks of the FTX earthquake, rather than due to a direct dependence on the defunct platform. You should know that the cryptocurrency ecosystem is still small compared to the traditional market. Thus, when the second largest trading platform in the world disappears, the entire market suffers the consequences.
Within this young market, there are companies and projects that are more fragile than others. Genesis Trading is one of the companies that were already weakened. The catastrophe caused by a probable fraud set up by SBF was therefore only the straw that broke the Genesis vase.
The reality is that, if Genesis Global Capital, the holding company which oversees Genesis Trading in particular, is dark, it is not only because of FTX. The company has indeed been struggling since last summer. It was partly funded by Singaporean crypto investment fund Three Arrows Capital (3AC). Very involved in the Terra (LUNA) ecosystem, 3AC did not survive the crisis caused by the loss of parity between the UST and the dollar.
Moreover, last July, we already mentioned the danger of the bankruptcy of 3AC for Genesis, since the first had to reimburse 2.3 billion dollars per second. Add a massive demand for withdrawals to the non-repayment of the 3AC loan, and it starts to do a lot for Genesis Trading. The company therefore no longer has the necessary funds to honor the withdrawals of its customers. So that’s why Genesis has suspended withdrawals until further notice.
To refinance, the American company estimated that it needed a sum of one billion dollars, before finally asking for at least 500 million. As of this writing, no one is running to save Genesis, not even Binance. The outcome should therefore be grim: Genesis Trading will be put into bankruptcy if the company does not find the $500 million it needs.
Who will be the collateral victims?
The bankruptcy of Genesis Trading would of course be terrible for the American company. But the consequences would go far beyond the Genesis alone. If Coinhouse had to freeze withdrawals from one of its products, it is because of the suspension of withdrawals on Genesis. Coinhouse Crypto Passbooks are effectively managed up to 40% by Genesis. Indeed, in order to offer its returns to its customers, Coinhouse goes through intermediaries who will themselves place the sums invested in funds, generally in decentralized finance. The platform is therefore highly dependent on the health of the American company. If the second is not in good financial health, the first will have to suffer the consequences.
To date, only Coinhouse has been identified as a collateral victim of Genesis’ poor financials, at least in France. However, Coinhouse is probably not the only company to use the services of Genesis, in particular to offer attractive returns to its customers.
It is therefore possible that in the coming days, customers of Genesis Trading will come forward and take action identical to Coinhouse. If so, the cryptocurrency market will continue to slide into the abyss.