Genesis Reveals Exposure to Bankrupt Three Arrows Capital

key takeaways

Genesis said it sold collateral and hedged further downside after the crypto hedge fund failed to meet a margin call in June
The amount loaned to 3AC has not been made public

Cryptocurrency lender and broker Genesis Trading said on Wednesday that it had exposure to recently bankrupt Three Arrows Capital (3AC).

In a Twitter thread, CEO Michael Moro said Genesis sold collateral and hedged its downside once the crypto hedge fund failed to meet a margin call in June. He added that the firm’s loans to 3AC had a weighted average margin requirement of over 80%, but didn’t disclose the loaned amount.

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The lender’s parent company, Digital Currency Group, has now assumed some of Genesis’ liabilities related to 3AC, Moro said. It is pursuing other strategies to recover any extra losses, he added.

The announcement comes about three weeks after Moro said Genesis mitigated losses with a “large counterparty” that failed to meet a margin call. He didn’t mention what figure the losses amounted to, but declared no client funds were impacted. The counterparty was widely assumed to be 3AC.

3AC’s bad loans have shaken the cryptocurrency industry, with some lenders revealing extensive losses that forced them to halt withdrawals and trading on their platforms. Crypto lender Voyager filed for bankruptcy on Wednesday, weeks after giving the fund a deadline to fulfill a $657 million loan repayment. Because 3AC last week filed for bankruptcy itself, it’s most likely not in a position to meet obligations.

“A lot of the [crypto industry] players are being brought to their knees,” Mark Connors, 3iQ Digital Asset’s head of research, told Blockworks in an interview.

He pointed to a high degree of leverage as a business model flaw in the companies freezing withdrawals or filing for bankruptcy. “People that use leverage, had a plan to be borrowing short and lending long…that asset-liability mismatch is exactly what Lehman did,” he said.

“There are going to be folks that don’t come back. There’ll be a washing-out, there’ll be a consolidation. There’ll be partnering, and there’ll be new players emerging in crypto.”

Genesis originated over $44.3 billion in loans in the first quarter this year, according to a company report. Active loans rose 17% to $14.6 billion at the end of the quarter.

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