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Tag: bankruptcy

  • Genesis Trading Insolvency Could Trigger a Bitcoin Collapse

    Genesis Trading Insolvency Could Trigger a Bitcoin Collapse

    What’s Happening with Genesis Trading?

    Genesis Trading is one of the world’s largest crypto trading desks for professional investors, primarily offering Bitcoin over-the-counter (OTC) trades and lending services. Recently, Genesis has temporarily suspended redemptions and new loan originations due to abnormal withdrawal requests in the aftermath of the collapse of FTX.

    Genesis stated that the withdrawal requests have exceeded its current liquidity, which raised concerns about the firm going insolvent. Because Genesis is directly affiliated with some of the largest crypto institutions, its fall could start another domino effect that is even more devastating than the FTX contagion.

    In case you are out of the loop, we have covered the entire timeline of the FTX contagion in chronological order listed down below:

    Fallback of Genesis Trading from Three Arrows Capital

    The lack of liquidity Genesis is undergoing is not only because of FTX. It is largely attributed to the fall of Three Arrows Capital (3AC) in the aftermath of the Terra Luna collapse.

    Genesis was the biggest creditor to 3AC, lending $2.4 billion. After 3AC went bankrupt, Genesis filed a $1.2 billion claim against them. When 3AC failed to provide the required collateral, the parent company of Genesis, Digital Currency Group (DCG), stepped in and assumed the $1.2 billion claim, leaving Genesis with no outstanding liabilities to 3AC.

    By Q3 2022, their market activity drastically fell, with loan originations falling from $50 billion in Q4 2021 to a mere $8.4 billion. Despite the situation, institutional investors still believe they were crypto’s safest counter-party.

    Gemini’s Exposure to Genesis Trading

    Gemini, one of the top crypto exchanges regulated in the U.S., announced that there would be withdrawal delays with its Earn product, in which Genesis is a lending partner. If you do not know how Genesis ties into Gemini Earn, here’s how it basically works:

    After the lenders give their crypto to Gemini, it will be given to Genesis for them to lend out to a fund. The borrowing party will pay fees for this, which will be shared between Gemini and the lenders. The problem now is that Genesis is having liquidity issues, thus they are unable to give Gemini back their crypto. This means that lenders on Gemini Earn cannot get their crypto back.

    Although Gemini assures this does not impact any other products and services, Gemini customers are rushing to get their funds out fearing the exchange is next to go down as the FTX contagion spreads. Over the past 24 hours at the time of writing, Gemini has seen $570 million in withdrawals and ETH withdrawals reached an all-time high on the exchange.

    Genesis Trading’s Impact on the Crypto Market

    It is not just Gemini but also many other CeFi platforms and major hedge funds use Genesis for their yield product. Moreover, many crypto whales opt to give their funds directly to Genesis to earn yields as well as custodial services. If Genesis is unable to give them back their crypto, many lenders worldwide could potentially lose their asset.

    Genesis is also a sister company of Grayscale, the world’s largest Bitcoin fund (GBTC) and one of the largest Bitcoin holders worth $11 billion at the time of writing. If Grayscale is affected by this, there is a possibility that Grayscale will dissolve GBTC to pay back lenders. This impact of this could be huge.

    However, Grayscale assured users that Genesis is not a counterparty or service provider for any Grayscale product, which means they will not be affected by Genesis suspending withdrawals. But in light of recent situations where FTX and Alameda claimed that they are two independent entities, sceptics are demanding a full audit to prove customer funds are safe.

    Genesis Trading Lays Off 30% of Workforce

    On 5th January 2023, Genesis Trading announced a large-scale layoff in order to reduce cost. According to sources close to the matter quoted by Coindesk, 30% of its workforce were cut, which especially affected the sales and business development departments. In addition to Genesis previously slashing 20% of its workforce in August, the company now has around 145 employees.

    The layoff follows shortly after Genesis Interim CEO Derar Islim sent a letter to clients on January 4, addressing the fact that the firm needs more time to sort out its financial issues. However, time is not something Genesis can afford as it faces increasing pressure from creditors.

    Genesis currently owes $900 million to Gemini, and is due to come up with a solution by 8th January 2023. Gemini co-founder Cameron Winklevoss believes that DCG is to blame and should be held responsible for its subsidiary company’s situation. In an open letter to DCG CEO Barry Silbert, Winklevoss accused him of “bad faith stall tactics” and claimed that a $1.675 billion loan from Genesis to DCG is the reason why Genesis is facing liquidity issues.

    Genesis Trading Considers Bankruptcy

    According to Wall Street Journal, Genesis hired investment bank Moelis & Company to review Chapter 11 bankruptcy filings. A Genesis spokesperson explained that it is to “preserve customer assets and drive the business forward.”

    As of 19th January 2023, Genesis is laying the groundwork for a bankruptcy filing, according to Bloomberg. Reports indicated that Genesis is in confidential negotiations with various creditor groups in an attempt to raise cash. However, if Genesis fails to raise capital, it is highly likely they will file for bankruptcy.

    Digital Currency Group (DCG) Under Severe Pressure Amid Genesis Crisis

    On 17th January 2023, DCG halted dividend payments to preserve cash. According to a letter to DCG shareholders reported by Bloomberg, DCG is focusing on strengthening their balance sheet by reducing operating expenses and preserving liquidity. As the parent company of Genesis, this move is most likely the result of the financial crisis Genesis is facing.

    Moreover, CoinDesk, whose parent company is DCG, is hiring advisors at investment bank Lazard to explore options for a potential sale, including a partial or full sale of the company. According to Wall Street Journal, CoinDesk has actually been privately seeking a deal for months, and has received numerous offers. Whether this is related to the Genesis and DCG crisis, no parties have responded to requests for comment.

    CONFIRMED: Genesis Trading Filed for Chapter 11 Bankruptcy Protection

    According to latest news by CNBC, Genesis Trading filed for Chapter 11 bankruptcy protection late Thursday night in Manhattan federal court. Over 100,000 creditors were listed in the company’s bankruptcy filing, with aggregate liabilities ranging from a whopping $1.2 billion to $11 billion.

    In its filing, Genesis stated that it anticipates that after the restructuring process, there will be funds available to pay off unsecured creditors – a group that can be completely eliminated in bankruptcy cases if the circumstances are particularly dire. They also noted the bankruptcy only affects its lending business, and that its derivatives and spot trading business will continue unhindered.

  • FTX Hacked: Hacker Identity Revealed by Kraken

    FTX Hacked: Hacker Identity Revealed by Kraken

    FTX Advises Users to Delete App and Avoid Website

    On the same day FTX, FTX US, and Alameda Research filed for bankruptcy, more than $600 million was reportedly drained from the cryptocurrency exchange. Many FTX users reported that their wallet balance showed $0. Shortly afterwards, FTX officials confirmed on Telegram that a hack was ongoing, warning all users to delete the app and avoid visiting the website due to a possible malware attack.

    Source: FTX_Official (Telegram)

    See also: SBF vs CZ War: What’s Happening with FTX and Binance?

    Tether Blacklists Stolen USDT of the FTX Hack

    A sizeable portion of the stolen funds contained USDT. After FTX’s announcement, Tether immediately blacklisted $31.4 million worth of USDT linked to the transactions. According to ZachXBT, a blockchain investigator widely trusted by the DeFi community, the blacklisted USDT were made up of $3.9 million USDT on Avalanche and $27.5 million USDT on Solana.

    By blacklisting the stolen USDT, hackers will not be able to move them to other accounts or exchange them for other crypto. To compensate victims of the hack, Tether will burn the blacklisted USDT and reissue equal amounts of tokens to the original owner(s).

    FTX Hack Speculated to be an Inside Job

    Suspicions circulated on Twitter that the “hack” was a smokescreen for FTX insiders (possibly Sam Bankman-Fried himself) to run off with the funds. The timing of it all was too much of a coincidence to suggest an external attacker taking advantage of the situation.

    A former senior FTX employee, quoted by Autism Capital, believed that it was impossible for someone outside of FTX to have so much root access so quickly, suggesting an inside job is highly likely. To corroborate this, FTX CTO Gary Wang was seen making major changes to FTX’s GitHub code, which implies that the source of the “hack” began there.

    Dyma Budorin, co-founder and CEO of Hacken, also concurred that it was an inside job, albeit the “hacker” was inexperienced and sloppy.

    Kraken Reveals Hacker Identity to be FTX Insider

    The crypto community kept a close eye on the movement of the stolen funds, and discovered that one of the wallet addresses was linked to a Kraken exchange, where the hacker offloaded funds to a Tron wallet. This was a huge blunder for the hacker as Kraken holds know-your-customer (KYC) information of all registered accounts, allowing them to track down the wallet user.

    As a result, Kraken CSO Nick Percoco announced on Twitter than they know the identity of the hacker, and are assisting law enforcement agencies with the investigation. Percoco later confirmed that the wallet indeed belongs to a verified account registered by FTX. Sam Bankman-Fried and FTX will be making a public statement regarding this issue.

    To follow up on the investigation, Kraken has frozen accounts associated with the FTX Group and Alameda Research. They assured that they maintain full reserves and other Kraken clients are not affected.

  • Voyager Digital goes bankrupt: A victim of the Three Arrows Capital collapse?

    Voyager Digital goes bankrupt: A victim of the Three Arrows Capital collapse?

    Voyager Digital is a publicly listed crypto brokerage firm which filed for bankruptcy on 5th July 2022.

    Who is Voyager Digital?

    Voyager Digital was founded in 2017 as a cryptocurrency brokerage firm allowing clients to buy and sell cryptocurrencies and other digital assets on its platform. Their main feature was that they did not charge commission fees through utilizing its smart order routing to connect to dozens of other cryptocurrency exchanges and market makers. Voyager Digital is currently listed on the Toronto Stock Exchange under the stock ticker VOYG.

    Voyager Digital is also a major creditor of Three Arrows Capital, which has also recently filed for bankruptcy. Since 1st July 2022, Voyager Digital has temporarily suspended all trading, deposits, withdrawals, and loyalty rewards on its platform.

    Voyager Digital files for bankruptcy

    Voyager Digital issued a Notice of Default against 3AC on 27th June 2022 and reduced its withdrawal limit to US$10k per day. This spooked shareholders and users of Voyager Digital. The Company saw its share prices plunge over 60% after its ties with 3AC was revealed, combined with its poor performance during the crypto downturn.

    The Notice stated that 3AC failed to make timely repayments on its loan of 15,250 BTC and US$350 million USDC. However, Voyager Digital has reassured its users that its platform is still fully functional. Furthermore, as of 24th June 2022, Voyager had approximately US$137 cash and crypto assets on hand. The Company also has US$200 milllon cash and USDC, and a 15,000 BTC revolving loan from Alameda Ventures Limited.

    On 5th July 2022, Voyager Digital Holdings filed for bankruptcy in the Southern District of New York. Voyager Digital estimates it has over 100,000 creditors and total debts of somewhere between US$1 to US$10 billion in liabilities. The Company believes that notwithstanding its liabilities, it still has around US$1 to US$10 billion in assets. They also assure that will have sufficient funds available for distribution to its unsecured creditors.

    According to a tweet by CEO Stephen Ehrlich, the purpose of filing for bankruptcy was to “…protect assets on the platform, [and] maximize value for all stakeholders.”

    This is certainly a huge relief to Alameda Research. They are listed in court documents filed by Voyager as its largest unsecured creditor with over US$75million in unpaid debts. This is substantially larger than its second largest unsecured creditor with a US$9.7million claim.

    Meanwhile, the share prices of Voyager Digital Ltd (VYGVF) plummeted by almost 12% as a result of this development. Share prices for the Company took a huge hit since their involvement with 3AC was discovered. VYGVF share prices have been down nearly 89% since early June 2022.

    FTX to bail out Voyager Digital?

    FTX exchange recently secured a winning bid of US$1.42 billion for Voyager Digital’s assets. The assets included in the bid include (i) the fair market value of all of Voyager’s cryptocurrency at a future date to be determined, worth around US$1.3 billion; and (2) additional consideration of “incremental value”, worth around US$111 million. As for Voyager’s claims against Three Arrows Capital, this will remain with the bankruptcy estate and any amount eventually recovered will be distributed to the estate’s creditors.

    The tentative plan from FTX will allow all priority claimants to be paid out in full. Meanwhile, other account holders would be able to recover approximately 72% of their account value. The plan for FTX to buy out Voyager’s assets however is still pending the approval of Voyager’s creditors and the Court.

    Voyager Digital suspends withdrawals, will customers get their USD and crypto back?

    According to the latest blog post from Voyager Digital, they are working to restore access to customers’ USD deposits. However, it does not mention when withdrawals will be reopened. Voyager Digital also alleged that customers’ USD in their Voyager cash account is held in a For Benefit of Customers account at the Metropolitan Commercial Bank of New York (and not by Voyager themselves) and is Federal Deposit Insurance Corporation (FDIC) insured. However, a joint letter dated 28th July 2022 from the Federal Reserve and the FDIC to Voyager requests them to remove “false and misleading” statements that its user deposit accounts are FDIC insured.

    As for customers’ cryptocurrencies, Voyager states that they have approximately US$1.3 billion worth of crypto assets on their platform. This is inclusive of its over US$650million claim against Three Arrows Capital.

    Voyager has proposed a reorganization plan which is currently pending the approval of the Court. Customers will be able to select the following options with regards to their cryptocurrencies held by Voyager:

    1. Pro-rata share of cryptocurrencies;
    2. Pro-rata share of proceeds recovered from Three Arrows Capital;
    3. Pro-rata share of common shares in Voyager after it is reorganized; and
    4. Pro-rata share of existing Voyager tokens.

    However, according to Voyager, this is not the finalized plan. Voyager’s customers will have the opportunity to vote on whether or not they agree with the reorganization plan. It is likely that it will be a long time before customers will have their funds and cryptocurrencies returned.

    Voyager details claim process for customers

    Voyager’s blog post details how affected customers with cryptocurrencies in their accounts can begin to claim their crypto. Voyager will be sending an email from “Voyager Digital Restructuring” containing a unique link and personal identification number. The link will set out the customers’ account holdings. If customers agree with the account information set out in the email, they are not required to submit a claim form. On the other hand, if customers disagree with the information, or the claim is marked as “contingent”, “unliquidated” or “disputed”, they must submit a proof of claim form. This Proof of Claim form must be filed on Voyager’s case website on or before 3rd October 2022 at 5:00pm EST.

    However, there is still no information on when affected customers can actually receive the cryptocurrencies locked in their Voyager Digital accounts.

    Voyager customers say no to “retention bonus” totaling US$1.9 million to employees.

    Voyager had asked the Court to approve a US$1.9 million payment to 38 of its employees as a “retention bonus”. The Company claims that these employees are essential to its continued operation and restructuring, and are apparently non-executive employees. Voyager is also asking the Court to allow them to redact the names, titles, salaries, proposed bonuses and other information relating to the 38 persons. Their reasoning is that this is non-public and personal information which could be sensitive.

    However, a group of Voyager customers objected to Voyager’s proposal, stating that its employees are already well-compensated and that there is little evidence that they plan to resign. They also argue that the Company has otherwise done little else to reduce costs. The US Trustee’s Office is also objecting to Voyager’s proposal, particularly to the request to redact the employees’ information. This is because they see it as critical information that stakeholders should have in order to evaluate whether the proposed bonus is necessary.

    On 24th August 2022, the Court ultimately approved Voyager’s application to pay US$1.9 million in retention bonuses to employees.