Genesis filed for bankruptcy, with outstanding debts of $5.1 billion as of November and more than 100,000 creditors!

The crypto bear market has brought down another star company. On the evening of January 19, New York time, crypto lender Genesis Global Holdco LLC and its two lending subsidiaries ( Genesis Global Capital LLC and Genesis Asia Pacific Pte. Ltd) filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, the latest domino to fall following the implosion of FTX .

Genesis Global Capital said in its filing that it has more than 100,000 creditors and total outstanding debt of approximately $5.1 billion as of Nov. 30, 2022. Genesis' derivatives and spot trading subsidiaries, its custody business and its brokerage unit, Genesis Global Trading, were not included in the bankruptcy filing and continue to conduct customer trading operations.

The claims of the top 50 creditors amount to US$3.4 billion. The full list has not been disclosed. The top 10 known creditors are shown in the figure below:

Among them are many familiar names: Gemini Trust Company (related business Gemini Earn), approximately US$766 million; Mirana, the investment arm of the crypto exchange Bybit , approximately US$152 million; Babel Finance's parent company MoonAlpha Finance, US$150 million; VanEck , US$53 million.

A Bybit spokesperson clarified in a tweet that Mirana’s balance sheet is separate from Bybit’s and Mirana’s customer assets are “segregated” and “protected.” Babel Finance, one of the crypto firms that froze withdrawals in mid-2022, is backed by Sequoia Capital China and was forced to restructure after huge losses in its proprietary trading business.

A year ago, Genesis and other large crypto lending companies attracted millions of customers with the promise of high interest returns by depositing crypto assets, but Genesis' bankruptcy filing makes it the latest mainstream crypto lender to fail since last spring, including BlockFi , Celsius Network and Voyager Digital . Genesis held out longer, but it was unable to survive the impact of the FTX implosion. In November last year, Genesis froze withdrawals, citing "market turmoil" caused by the FTX bankruptcy.

When will the debt be repaid? Who will pay it back?

The bankruptcy filing shows that Genesis has developed a reorganization plan and hopes to implement it by May 19.

Under the proposed reorganization plan, Genesis will try to find a buyer and distribute the proceeds to creditors. If a sale isn’t feasible, creditors would receive stock in the reorganized company. The plan, which is not final and requires approval from a federal judge and input from any creditors whose interests were hurt in the process, could take months or years to resolve itself before the company figures out how much of its assets it can distribute to customers and other stakeholders.

Another peer – Celsius – has spent months determining whether customers’ assets belong to depositors or the crypto company since filing for bankruptcy protection last July.

Genesis said in the filing that it has more than $150 million in cash on hand, which will provide "ample liquidity" to help operate its business and support the restructuring process. It is in "ongoing, productive discussions" with its creditors and advisors to its parent company, Digital Currency Group (DCG), to find a way to "protect its assets and move the business forward."

Eric Snyder, partner at Wilk Auslander, commented that it could “take a long time” to figure out Genesis’ assets and liabilities. “The question is, what is the value of the collateral? If the collateral is cash, real estate or securities, that’s one thing. But if it’s a crypto token, it’s hard to put a price on it. For example, if they hold FTT tokens, we know the value is very limited,” he said.

Genesis is seeking bids for all of its assets by no later than April 14, according to court documents. If successful, the four-month restructuring process would be much faster than that of Voyager Digital and Celsius Network.

Creditors may also eventually get their money back from DCG. DCG has been under financial pressure after hedge fund Three Arrows Capital suddenly collapsed last year. Months later, FTX began to collapse and Genesis fell victim to a wave of loan redemption requests, and DCG scrambled to cover the losses, exchanging 10-year promissory notes for Genesis' $1.2 billion claim against 3AC. Genesis board member Paul Aronzon said in a court filing that Genesis has hired a former federal prosecutor to investigate the company's $850 million loan to DCG entities. Aronzon said that under the company's restructuring proposal, any money collected from the lawsuit filed by Genesis will help repay creditors.

Industry trust is difficult to restore

The Genesis bankruptcy filing has sparked a variety of community reactions, with some suggesting that the winners from all of this will be the bankruptcy lawyers. According to a community member claiming to be a Voyager creditor, customer funds will be used to pay the lawyers $1 million and that in the end “no one will be held accountable.”

Meanwhile, a crypto analyst created a list of relationships that show potential connections between all the bankrupt mainstream cryptocurrency companies in the industry. The analyst tweeted that the Genesis bankruptcy will reveal the entire leverage cycle of cryptocurrency.

Some of the debt relationships revealed also raise new questions: For example, Genesis holds a loan to Decentraland , while DCG’s independent subsidiary Grayscale holds 18 million MANA tokens from the project. (As of January 20, the holding was worth $11.74 million, down from a peak of $105.8 million in November 2021.)

Some community members expressed their lack of trust in crypto companies. One Twitter user said that people no longer trust American companies because they are all stakeholders in each other. Dogecoin founder Billy Markus also commented on the issue, calling the entire concept of crypto lending "stupid" and accusing everyone involved of being "idiots."

The ups and downs of the crypto market are normal, and most users believe that the fundamentals of the market structure and mechanisms remain, but trust is a vital force for any industry to thrive. If manipulation, insider trading, bad loans and poor risk management become the norm, user trust in the ecosystem will be difficult to restore.