Cryptocurrency brokerages Gemini and Genesis are reassuring people that their operations are still solvent after the massive FTX exchange disaster.
FTX’s insolvency could lead to serious liquidity problems for more companies in the industry, including crypto exchanges and lenders.
Gemini, the exchange founded by the Winklevoss twins, is trying to calm down crypto investors. The exchange said Wednesday it would stop withdrawals on its interest-bearing Earn accounts. Genesis is the lending partner for the Earn accounts.
“We are aware that Genesis Global Capital, LLC (Genesis) – the lending partner of the Earn program – has suspended withdrawals and will not be able to fulfill customer redemptions within the service level agreement (SLA) of 5 days business.” Twin said.
Gemini said he hopes to get more information in a few days.
“We are working with the Genesis team to help customers redeem their funds from the Earn program as quickly as possible,” Gemini said in a tweet. “We will provide more information in the coming days.”
The company added, “We are disappointed that the Earnings program SLA will not be met, but Genesis and the Digital Currency Group are committed to doing everything they can to fulfill their obligations to customers under the Earnings program,” i. tweet.
Gemini’s other products and services are not affected since the company is an “exchange and full-reserve custodian,” according to a tweet. “All customer funds are held on the Gemini 1:1 exchange and are available for withdrawal at any time.”
Gemini faced another setback around 12:00 PM ET when an outage hit AWS, Amazon’s cloud platform. The outage was repaired within a few hours
“An Amazon Web Services EBS outage occurred with one of our databases,” the company tweeted. “We have restored the database and are bringing the exchange back.”
On November 9, two days before FTX filed for bankruptcy, Cameron Winklevoss, who founded cryptocurrency exchange Gemini with his twin brother Tyler, sent a thinly veiled criticism of FTX.
“We do nothing with your funds unless specifically authorized and instructed to do so,” he posted on Twitter. “Regulatory oversight is important because it ensures that companies like Gemini do what they say they do.”
Genesis Stops Customer Withdrawals
Crypto exchange Genesis confirmed on Wednesday that it has stopped customers from making withdrawals and issuing new loans, the latest company to be heavily affected by the fall of FTX.
The brokerage told TheStreet in an email that “serving our clients and preserving their assets is our number one priority,” a spokesperson said.
“Therefore, we have made the difficult decision to temporarily suspend redemptions and new loan initiatives in the lending business,” said Genesis. “We are working diligently to secure the necessary liquidity to meet our borrowing client obligations.”
The division that halted the withdrawals is Genesis Global Capital, which works with institutional clients and had $2.8 billion in total active loans at the end of the third quarter of 2022.
Genesis said it has three main lines of business: spot and derivatives trading, lending and borrowing, and custody.
“Our spot and derivatives trading and custody businesses are fully operational,” a company spokesman said.
Genesis said via Twitter that it is working on a plan for its loan business such as injecting new capital that will be announced next week.
“We have engaged the best consultants in the industry to explore all possible options,” the company tweeted. “Next week, we will provide a plan for the lending business. We are working very hard to identify the best solutions for the lending business, including, among other things, finding new liquidity.”
The company confirmed that Genesis Global Trading, its broker/dealer that holds its BitLicense, is “independently capitalized and operated – and separate from all other Genesis entities,” in a tweet.
Genesis is facing heavy losses after Three Arrow Capital, also known as 3AC, went bankrupt in May.
The crypto company filed a $1.2 billion claim in bankruptcy court.
Genesis has no outstanding liabilities linked to Three Arrows Capital.
“3AC negatively impacted the liquidity and maturity profiles of our Genesis Global Capital lending entity,” the company tweeted. “Since then, the book has been de-risking and enhancing our liquidity profile and the quality of our collateral.”
FTX was once a major brokerage for crypto trading and the bankrupt company said it may have as many as a million investors seeking to recoup their losses.
The Bahamian-based brokerage filed for bankruptcy after facing massive liquidity issues when its acquirer, Binance, backed out of a merger.
Several other crypto firms, including Celsius and Voyager Digital, also filed for bankruptcy in 2022 as they were also facing liquidity issues and falling prices in bitcoin and other digital assets.
FTX was an exchange used by crypto investors that included retail and institutional traders such as some hedge funds. It was backed by many 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 November 11, was the result of a lack of liquidity when clients tried to withdraw funds from the platform a few days ago. The liquidity shortfall appears to have been a result of FTX’s founder transferring $10 billion of customer funds from FTX to his cryptocurrency trading platform Alameda Research, according to Reuters, citing two sources who “held senior FTX positions to until this week”.