Genesis: The unexpected threat to the crypto market

Genesis Trading is not usually a ubiquitous term in the crypto scene. In truth, the company is behind many offers that promise users interest on their cryptocurrencies. A crypto veteran believes the company is THE unexpected threat to the crypto market.

The company is behind many lending offers

Genesis Trading is sometimes one of the crypto veterans. The company opened its doors back in 2013 and has since grown into one of the largest crypto lenders. The company has recently made headlines.

The Problem: Crypto lender slips into illiquidity with massive withdrawals after FTX crash shakes confidence in centralized crypto firms. As of November 16, users are no longer able to withdraw their deposited cryptocurrencies.

Now crypto veteran Jason Yanowitz has his say. He believes Genesis Trading is THE threat to the crypto market, according to posts on Twitter.

Genesis has grown into such an important centralized company in the industry over the years that it also poses a significant threat to the sector.

How powerful the company really is often remains hidden. Many companies provide the lender’s offers on a proxy basis. This includes the well-known crypto exchange Gemini.

Why is Genesis such an important sticking point?

On December 31, 2021, Genesis reported a massive $12.5 billion in active loans, down to $2.8 billion through September 2022. The principle of the company is very simple. End users are given the opportunity to earn interest.

However, they have to take a big risk: They have to put their cryptos in the hands of Genesis. If you are risk-aware enough, you can earn up to ten percent annual interest, depending on the investment. Genesis usually transfers 6.5 percent interest on the Bitcoin , while you get the maximum value for the stablecoin USDC.

Genesis then uses the capital to make it available to institutions. These take out loans to obtain liquidity for their projects or to cover running costs.

However, the concept only works if the borrower actually pays back the money. If this is not successful, Genesis is not able to repay the loans and consequently the individual customers cannot pay out their cryptos. In the worst case, you are stuck with the damage.

This is where the drastic difference to DeFi becomes apparent. In decentralized finance, bonds usually have to be overcollateralised by the borrower. If the money doesn’t come back as promised, you pay off the lenders with the cover.

That’s where the bear market comes in: As more and more companies collapse in the 2022 bear market, Genesis is facing billions of dollars in losses. Liquidated hedge fund 3AC was one of the borrowers that was loaned $2.4 billion.

Genesis mother DCG saves repeatedly

In the end, the Genesis parent company Digital Currency Group had to settle outstanding repayments of 1.2 billion US dollars. However, the damage does not end there. Other companies collapsed to the detriment of the crypto lender.

FTX left a gap of $175 million. Hundreds of millions have also been lost through Babel Finance .

Almost every whale I know that plays in crypto gives their money to Genesis.

Explains Yanowitz. The risk of a chain reaction is therefore huge. The more Genesis partners collapse, the greater the damage that may ultimately be passed on to end users and destroy confidence in the market there.

So far, the Digital Currency Group has repeatedly been able to compensate for the damage caused by its subsidiary. There are currently justified doubts that this will continue to be possible without restrictions in the future.

Institutions have seen Genesis as a safe haven over the last few years. The negative tendencies on the crypto market and a return of the scene to the self-government of cryptos are causing this reputation to falter.

Celsius Network provides a similar offering to Genesis. In the summer of 2022, Celsius collapsed . In late 2021, its assets under management peaked at $25 billion . However, large parts of it were not active loans, but served Celsius in trading.