Failed crypto lender Genesis Global Holdco and its major creditors have reached a deal to resolve its bankruptcy case. For investors owed money by Genesis, it means they could get some of their money back more quickly. But the implications are bigger for the crypto industry.
Before seeking bankruptcy protection last month, Genesis was one of the most important crypto lenders. It lent money to institutional investors like hedge funds for trading, sometimes borrowing it from small investors through platforms that let them deposit crypto in exchange for double-digit yields. One of those platforms was Gemini Earn, a product offered by the crypto firm founded by the Winklevoss twins, whose customers are owed nearly $1 billion.
Genesis also lent money to and was a major subsidiary of Digital Currency Group, a crypto conglomerate and venture-capital firm with stakes in every major part of the industry. DCG has said Genesis’s bankruptcy doesn’t affect its other subsidiaries, but the company has closed one of its businesses and laid off staff during the broader crypto downturn.
Those connections make a contentious and drawn-out bankruptcy case especially fraught for the crypto market. Some investors and industry executives feared that if Genesis’s creditors—potentially facing their own liquidity issues with many companies around the industry calling back loans—couldn’t get funds back quickly, they could sell
or other tokens in fire sales. That could send cryptocurrency prices lower, potentially resulting in more investors breaching margin requirements and being forced to sell in a vicious circle.
A potential deal could sidestep that scenario, even it means some creditors won’t ever get a full recovery.
“Today’s agreement is a positive step forward and provides a clear path to a consensual resolution that maximizes value,” attorney Paul Aronzon, a member of a special committee of Genesis’s board of directors that is handling the bankruptcy, said in a statement.
While some details still need to be worked out, Genesis described the contours of the deal in the courtroom where its bankruptcy case was under way late Monday. Under the deal, DCG would convert a $1.1 billion promissory note due in 2032 that it owed to Genesis into preferred stock. It would also give up its equity in another Genesis entity, that wasn’t part of the bankruptcy case, so that it could be sold with potential proceeds going to creditors. Gemini would contribute $100 million to supplement recoveries for its own customers.
“This plan is a critical step forward towards a substantial recovery of assets for all Genesis creditors,” said Gemini co-founder Cameron Winklevoss on Twitter.
The plan isn’t a done deal. Even after the details are completed, it will still have to be voted on and approved by creditors. Some creditors could balk at the bankruptcy estate receiving preferred equity in DCG, rather than the $1.1 billion owed in 2032 under the note, and it’s unclear what value Genesis’s assets will have if they’re sold with the crypto market still in the doldrums.
“We are pleased to help Genesis reach this agreement” with creditors, DCG said in a statement.
But if the deal moves forward, it could go a long way to interrupting the chain of dominoes that started falling last year.
Write to Joe Light at firstname.lastname@example.org