Genesis files for bankruptcy. Here's why it's alarming🚨; Sequoia doubles down on early-stage founders 🚀; FTX 2.0? 👀
FinTech is Eating the World, 23 January
Hey Everyone,
Happy Monday! I hope you managed to relax over the weekend because today’s issue is really hot 🌶 We’re looking at Genesis bankruptcy and why it's alarming (a deep and eye-opening dive), Sequoia which is doubling down on early-stage founders across Europe & the US (+ 2 bonus reads on how you can raise more with less effort), and FTX 2.0 (how likely that the fraudulent exchange would be revived?). Let’s jump straight into the spicy stuff.
Genesis files for bankruptcy. Here's why it's alarming🚨
The (expected) news 📰 Crypto contagion continues to spread as crypto lender Genesis Capital has filed for bankruptcy protection in New York. On the same day, crypto exchange Gemini co-founder Cameron Winklevoss threatened to sue Genesis parent company Digital Currency Group and its CEO Barry Silbert.
Let’s take a closer look at this so we could connect the dots.
How we got here? 🤔 Here are the key developments that led Genesis to where it is today:
It all started with a now-bankrupt crypto hedge fund Three Arrows Capital aka 3AC. Genesis loaned them $2.3B which led to a loss of $1.2B when the fund collapsed last year.
Then came FTX. Genesis had $175M stuck on FTX and sought an emergency $1B loan to have enough liquidity. Genesis now seems to be the largest unsecured creditor of FTX that is owed $226.3M from the fraudulent crypto exchange.
To avoid the immediate armageddon, their parent company Digital Currency Group (DCG) opted to strengthen Genesis’ balance sheet with an equity infusion of $140M. That clearly wasn’t enough.
Now let’s take a step back. In a nutshell, Genesis allows clients to lend out their crypto in exchange for yields of as much as 10%, while also providing similar services for corporates like Gemini (which is a crypto exchange). It thus powers Gemini’s Earn program allowing their customers to earn interest on their crypto.
Gemini Earn reportedly has 340,000+ users that deposited $900 million into the program. It’s all gone now, and the Winklevoss twins have been publicly bashing Barry Silbert, CEO of Genesis’ parent company:
With that in mind, insolvency was only a matter of time. The filing lists more than 100,000 creditors, with aggregate liabilities ranging from $1.2B to $11B dollars. The crazy part? Genesis has less than $500M in assets while its largest creditor alone has a claim of $765M 😬
Smells fishy… 🐠 Once you zoom out, this starts to look more and more like an MLM or a pyramid scheme than a legitimate business. As John Cook has summed it up:
Earn loaned money to Genesis via Gemini
Genesis loaned money to 3AC collateralized by Grayscale shares created by Genesis
Grayscale then posted shares to 3AC
3AC then borrowed more money from Genesis collateralized by Grayscale shares to buy more Grayscles shares from Genesis 🤯🤯🤯
Source: John Cook via Twitter
You now know the context, the size of the mess, and the flow of funds. Let’s now see why it’s alarming and what might come next. Let’s connect the dots.