Cryptocurrency brokers Gemini and Genesis are reassuring people that their operations are still solvent after the massive collapse of exchange FTX.
FTX’s insolvency could lead to more companies in the industry facing serious liquidity problems, including crypto exchanges and lenders.
Gemini, the exchange founded by the Winklevoss twins, is trying to appease crypto investors. The exchange said Wednesday it would stop any withdrawals to its Earn accounts that accrue interest. The lending partner for the Earn accounts is Genesis.
“We are aware that Genesis Global Capital, LLC (Genesis) – the lending partner of the Earn program – has paused withdrawals and will not be able to meet repayments within the 5 business day service level agreement (SLA) from customers.” said Gemini.
Gemini said it hopes to have more information in a few days.
“We are working with the Genesis team to help customers redeem their Earn program funds as quickly as possible,” Gemini said in a tweet. “We will provide more information in the coming days.”
The company also said: “We are disappointed that the Earn program SLA will not be met, but we are encouraged by the commitment of Genesis and Digital Currency Group to make every effort to meet their obligations to customers under the Earn program,” in a tweet.
Gemini’s other products and services are not affected, as the company is a “full-reserve exchange and custodian,” according to a tweet. “All customer funds held on the Gemini exchange are held 1:1 and can be withdrawn at any time.”
Gemini suffered another setback around noon ET when it experienced an outage from AWS, Amazon’s cloud platform. The malfunction was resolved within a few hours
“We have experienced an Amazon Web Services EBS outage with one of our primary databases,” the company tweeted. “We’ve recovered the database and are bringing back the exchange.”
On November 9, two days before FTX filed for bankruptcy, Cameron Winklevoss, who founded cryptocurrency exchange Gemini with his twin brother Tyler, fired thinly veiled criticism at FTX.
“We will not do anything with your money unless you have expressly authorized us to do so,” he wrote on Twitter. “Regulatory oversight is important because it ensures companies like Gemini do what they say they do.”
Genesis stops withdrawing customers
Crypto exchange Genesis confirmed on Wednesday that it has stopped customers from withdrawing funds and making new loans, the latest company hard hit by the FTX collapse.
The brokerage told TheStreet in an email that it’s “priority is to serve our clients and preserve their assets,” a spokesperson said.
“That is why we have made the difficult decision to temporarily suspend loan repayments and new loans,” said Genesis. “We are working diligently to bolster the necessary liquidity to meet the obligations of our lenders.”
The division that halted the withdrawals is Genesis Global Capital, which works with institutional clients and had a total of $2.8 billion in active loans as of the end of Q3 2022.
Genesis said it has three primary business units: spot and derivatives trading, lending and borrowing, and custody.
“Our spot and derivatives trading and custody operations remain fully operational,” the company spokesperson added.
Genesis said via Twitter that it is working on a plan for its lending, such as injecting new capital that will be announced next week.
“We have hired the best advisors in the industry to explore all possible options,” the company tweeted. “Next week we will deliver a lending plan. We are working tirelessly to find the best lending solutions, including finding new liquidity, among other things.”
The company confirmed in a tweet that Genesis Global Trading, the broker/dealer that owns its BitLicense, is “independently capitalized and operated – and separate from all other Genesis entities.”
Genesis faces major losses when Three Arrow Capital, also known as 3AC, became insolvent in May.
The crypto company filed a $1.2 billion claim in bankruptcy court.
Genesis has no outstanding obligations in connection with Three Arrows Capital.
“3AC negatively impacted the liquidity and maturity profiles of our loan entity Genesis Global Capital,” the company tweeted. “Since then, we have reduced risk and strengthened our liquidity profile and the quality of our collateral.”
FTX was once a major brokerage for trading crypto and the bankrupt company said it could have as many as a million investors looking to recoup their losses.
The Bahamas-based brokerage filed for bankruptcy after facing massive liquidity problems as its acquirer, Binance, pulled out of a merger.
Several other crypto companies, including Celsius and Voyager Digital, also filed for bankruptcy in 2022 as they also faced liquidity issues and falling prices in bitcoin and other digital asset prices.
FTX was an exchange used by crypto investors, including retail and institutional traders, such as various hedge funds. It has been backed by numerous high-profile venture capitalists such as SoftBank, Ontario Teachers’ Pension Plan, Sequoia Capital, Temasek, Sea Capital, IVP, ICONIQ Growth, Tiger Global, Ribbit Capital, Lightspeed Venture Partners, and funds and accounts managed by BlackRock.
The insolvency of FTX, which filed for Chapter 11 bankruptcy on Nov. 11, resulted from a liquidity shortage when customers tried to withdraw funds from the platform a few days ago. The liquidity shortfall appears to stem from the fact that the founder of FTX reportedly transferred $10 billion in customer funds from FTX to its cryptocurrency trading platform Alameda Research, according to Reuters, citing two sources that “until this week had senior FTX positions clothed”.