The setbacks for the FTX trading platform are not done making waves. 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 lives only around the FTX earthquake. We knew that Sam Bankman-Fried’s (SBF) former empire, which includes the investment fund Alameda Research, had close ties to 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. Actually, if Coinhouse has suspended payouts from its Crypto Passbooksit was because they are controlled in part by Genesis.
Unknown in France, Genesis Trading has been part of the crypto ecosystem for many years. Its disappearance will be the end of a disastrous 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 that is considered advanced. 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 particular feature makes Genesis popular among wealthy investors, mining companies and even institutional investors.
Big players like to use a platform like Genesis because it can easily process large volumes of transactions and lend millions of dollars in cryptocurrencies. One of the reasons for this is that Genesis requires a number of specific documents to open an account, such as company documents or, if applicable, a government identifier.
Today, Genesis is in danger, partly because of the FTX affair. However, the connections between the broker and the SBF empire are relatively unclear. In fact, we know that Genesis loaned cryptocurrencies to Alameda Research and accepted the FTT token, FTX’s original token, as collateral. However, the amount lent was not disclosed … and FTT lost 95% of its value in two weeks.
If today the broker is 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. When the second largest trading platform in the world disappears, the entire market therefore suffers from 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 was already weakened. The disaster caused by a probable fraud created by the SBF was therefore only the last straw that broke the Genesis vase.
The reality is that if Genesis Global Capital, the holding company that oversees Genesis Trading in particular, is dark, it’s not just because of FTX. The company has actually been struggling since last summer. It was partially funded by Singaporean crypto investment fund Three Arrows Capital (3AC). Heavily involved in the Terra (LUNA) ecosystem, 3AC did not survive the crisis caused by the loss of parity between the UST and the dollar.
In addition, we already mentioned last July the danger of 3AC’s bankruptcy for Genesis, when the first had to repay 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 its customers’ withdrawals. So that’s why Genesis has suspended withdrawals for now.
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 result should therefore be bleak: Genesis Trading will be bankrupted if the company does not find the $500 million it needs.
Who will be the security victims?
Genesis Trading’s bankruptcy would obviously be terrible for the American company. But the consequences would go far beyond 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. The platform is therefore very dependent on the health of the American company. If the other is not in good financial health, the first must suffer the consequences.
To date, only Coinhouse has been identified as a collateral casualty of Genesis’ poor finances, at least in France. However, Coinhouse is probably not the only company using Genesis’ services, especially to offer attractive returns to its customers.
It is therefore possible that customers of Genesis Trading in the coming days will come forward and take action identical to Coinhouse. If so, the cryptocurrency market will continue to slide into the abyss.