Genesis, a subsidiary of Digital Currency Group (DCG), has been impacted by the collapses of crypto exchange FTX and crypto hedge fund Three Arrows Capital and has now filed for bankruptcy. Securities fraud attorney David Silver, a founding partner of Silver Miller Law, said Genesis users should seek legal counsel if they want to recover their assets. Despite this latest bankruptcy filing, some crypto experts believe these challenges will help to reshape the crypto industry, not end it.
On Jan. 19, cryptocurrency lender Genesis filed for bankruptcy after laying off 30% of its staff earlier this month, the BBC reported. The crypto lender is also facing charges from the U.S. Securities and Exchange Commission (SEC) for allegedly selling crypto illegally. The bankruptcy filing is the latest in a string of implosions in the crypto sector. Genesis was owed more than $1 billion by Three Arrows Capital (3AC), which filed for bankruptcy last year after the collapse of Luna and TerraUSD. Cameron and Tyler Winklevoss, former Olympic rowers who founded crypto company Gemini, have been publicly airing their grievances with the CEO of Genesis' parent company DCG, Barry Silbert, over the fact that in November, Genesis froze the ability of 340,000 users of Gemini Earn to withdraw their approximately $9 million in funds. Gemini is also facing charges from the SEC, which the Winklevoss twins said they were looking forward to defending.
In a Jan. 19 tweet, Cameron Winklevoss said Genesis' bankruptcy filing "is a crucial step toward us being able to recover your assets." He accused Silbert of refusing "to offer creditors a fair deal."
"The good news is that, by seeking the protection of the bankruptcy court, Genesis will be subject to judicial oversight and be required to provide discovery into the machinations that brought us to this point. Crucially, the decision to put Genesis into bankruptcy does not insulate Barry, DCG and any other wrongdoers from accountability. We have been preparing to take direct legal action against Barry, DCG and others who share responsibility for the fraud that has caused harm to the 340,000+ Earn users and others duped by Genesis and its accomplices," Winklevoss said in the Twitter thread.
Silbert, whose net worth is approximately $3.2 billion, is the founder and CEO of DCG, which is a conglomerate of five crypto companies with numerous subsidiaries, according to Forbes. Through the subsidiaries, DCG has invested in more than 200 crypto startups.
"As predicted, Genesis filed for bankruptcy. No QUICK resolution to the Gemini Earn issues at hand," Silver wrote in a Jan. 20 Twitter post. "Accountholders need to protect themselves. Gemini is maneuvering to protect itself, not the average Gemini accountholder. The businesses have lawyers; you need one too!"
Silver is a Florida-based founding partner of law firm Silver Miller, who specializes in helping crypto users and investors recover lost funds, according to the firm's website.
Some crypto experts believe this string of implosions in the crypto industry is not the end of crypto lending, but instead represents an opportunity to rework and transform the lending process, Coin Telegraph reported. Duke University finance professor Campbell Harvey, co-author of the book "DeFi and the Future of Finance," said recently that he does not think Genesis' bankruptcy filing signals the end of crypto lending. He believes the companies going under failed to plan for worst-case scenarios in "a failure of risk management." Harvey predicted that as the crypto industry undergoes some reshaping in 2023, traditional finance (TradFi) institutions such as banks could step forward to play a bigger role in crypto lending.
“Traditional firms with expertise in risk management will enter the space and fill the void,” Harvey said.
Interim CEO of SALT Lending Shawn Owen agreed.
"The emergence of traditional financial firms in the crypto lending market is a development we saw coming, and it showcases the growing mainstream acceptance and potential of this innovative industry,” Owen said.
Michael Novogratz, the CEO of crypto investment firm Galaxy, said in a recent YouTube video that he believes institutional investors will wait to engage more deeply with the crypto industry until they are confident that the sector is more stable.
"Crypto needs the retail participants to come back to these communities, to buy in, to believe, to drive price, because that's what's going to get institutions back engaged. Institutions intellectually understand this business - blockchain versus Bitcoin versus Ethereum - they've done all their homework," he said. "They're gun shy."