Reports have revealed that Genesis had lent $2.36 billion to crypto hedge fund Three Arrows Capital (3AC). The crypto hedge fund had recently filed for Chapter 15 bankruptcy in New York. Genesis’s parent company, Digital Currency Group, has assumed some of the liabilities stemming from Genesis’s exposure.
A Nine-Figure Loss
The amount that Genesis had lent Three Arrows Capital has finally been revealed to the public, with reports confirming that the crypto lender had loaned $2.36 billion to the collapsed hedge fund. The loans given to Three Arrows Capital had a margin requirement of over 80% and sold collateral when Three Arrows Capital failed to maintain the requirement. As a result, Genesis began seeking debt through arbitration in New York.
Earlier reports had revealed that Genesis was facing a potential nine-figure loss thanks to its exposure to Three Arrows Capital. However, the exact size of the debt had not been revealed until now.
Uncollateralized Debt
Documents revealed the true nature of the debt, highlighting the outstanding $2.36 billion owed to Genesis by the crypto hedge fund. The documents also revealed that the debts were uncollateralized, stating that Genesis had tried to recover some of the outstanding loans owed through arbitration proceedings against Three Arrows Capital (3AC) by going to the American Arbitration Association (AAA) in New York.
However, Genesis paused the arbitration process after advisory firm Teneo was appointed to oversee the liquidation process of Three Arrows Capital.
Balance Sheet Remains Strong
The details of loans given to Three Arrows Capital were revealed in a legal document uploaded by the firm Teneo, which is overseeing the liquidation process. A spokesperson for Digital Currency Group stated that there is no remaining exposure to Three Arrows Capital and that the balance sheet remains positive.
“Both the DCG and Genesis balance sheets remain strong. With no remaining exposure to Three Arrows Capital, Genesis continues to be well-capitalized, and its operations are business as usual.”
Digital Currency Group Exposed
In a letter to the American Arbitration Association, Genesis stated that Three Arrows Capital had breached two lending agreements signed between the parties. These were signed in January 2019 and January 2020. CEO of Genesis, Michael Moro, took to Twitter to clarify the situation, stating that the loans given to Three Arrows Capital had a weighted average margin of over 80%. However, the crypto hedge fund could not meet the requirement, prompting Genesis to sell its collateral. He further added that Digital Currency Group had stepped in to assume some of the liabilities of Genesis to ensure that it had access to capital to operate and scale its business.
This also means that Digital Currency Group, and not Genesis, is exposed to potential losses linked to Three Arrows Capital and its borrowing.
Genesis Makes $1.1 Billion Demand
Documents also showed that Genesis had demanded that $1.1 billion in “outstanding unsecured borrowings” be put in escrow for the entire length of the arbitration processes. However, this claim now belongs to Digital Currency Group, thanks to their exposure. As of June 15th, Three Arrows Capital was around $462 million short of its collateral requirements. Three blocks of shares backed the loans from Genesis in the Grayscale Bitcoin Trust, totaling around 17,443,644 shares.
Just a few months ago, Three Arrows Capital was considered one of the top investment firms in the crypto space, backing several DeFi startups, projects, and more. However, the firm has seen a rapid reversal of fortunes over the past couple of months, with crypto lenders liquidating millions of dollars worth of collateral backing loans to the fund.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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