Original compilation: Leo, BlockBeats
Original compilation: Leo, BlockBeats
On November 16, Genesis announced that its lending arm was suspending withdrawals and disbursements. Later in the day, the encrypted trading platform Gemini issued a document stating that its wealth management product Earn was affected by the suspension of withdrawals and distributions by Genesis and suspended withdrawal services. Subsequently, on November 23, Bloomberg published an article stating that Genesis, an encrypted lending agency, had US$2.8 billion in outstanding loans on its balance sheet, of which about 30% of the loans were issued to affiliated companies, including its parent company DCG (Digital Currency Group) , and the company has been trying to raise $1 billion in cash before, and if it fails to raise funds, the worst plan may be to file for bankruptcy.
Previously, Lumida Wealth Management CEO Ram Ahluwalia wrote an article on genesis "Genesis on the verge of bankruptcy, what exactly does it do?"Help everyone better understand the business operation of Genesis.
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What's up with Gemini Earn's customers now?
I think there is a credible path to recovery, provided that Gemini Earn's clients need to make a choice: accept short-term immediate liquidity in exchange for a small amount; or wait long-term until full recovery.
NOTE: This article does not represent any legal advice or financial advice, double check your loan agreement. DYOR (do your own research). I'm just sharing an opinion and seeking outside advice, also, don't just trust people on the internet.
The analysis assumes a scenario where Genesis goes through Chapter 11 bankruptcy, with three factors at play:
- DCG's willingness and ability to raise equity capital
- Priority of Gemini claims (currently unknown)
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some good news
DCG's letter to shareholders revealed that Genesis had a loan (promissory note) of US$1.1 billion to its parent company DCG, and there was no risk of bad debts with 3 AC. This series of actions (by transferring 3 AC assets to DCG) restored Genesis Solvency of Lending.
However, Genesis Lending currently has maturity issues (the loan matures in June 2032), ideally Genesis Lending would sell $1.1 billion in loans on the open market, but there is no corporate loan market for DCG's debt, and this loan Its current value is well below $1.1 billion.
I don't see the terms of the promissory note loan, assuming the $1.1 billion is payable after 10 years with no P&I (principal and interest) payments in between. At a 12% discount, the promissory note is worth $350 million; at a 15% discount, the promissory note is now worth $272 million.
Currently, Genesis Lending has two loans to DCG covering assets of approximately $1.7 billion, and DCG will be able to meet its obligations and make loan payments as long as it remains a going concern. If DCG has flexibility in valuation, it should be able to raise capital: the right thing to do for DCG is to raise equity - remove tail risk and pay Gemini Earn clients who expose DCG to state agencies and Class Action Risk.
If DCG raises more than US$500 million in equity, its ability to fulfill its bond payment obligations will be greatly improved, but the risks include: DCG did not raise a large amount of funds; GBTC or BTC prices plummeted; further loan writedowns.
To be clear, the price of BTC is directly related to Grayscale's ability to generate revenue: BTC must remain above $10,000 for Grayscale to generate sufficient fees (specific reference), these are risk factors, Genesis is negotiating with its creditors and DCG, Genesis Lending's leverage includes: principal forgiveness; new payment plan; providing "bail-in" (eg, conversion of debt into equity).
Assuming no bailout, Genesis Lending should be in Chapter 11 bankruptcy (other affiliates such as the OTC desk will continue to operate as usual). Genesis Lending does not want a group of retail investors to own a portion of the business. Plus, depositors just want their principal back.
But since Genesis Lending is currently solvent, there is a path to full recovery, but savers may face a difficult choice:
- Deadline exit: get some money now, get the rest in a few years
- Accept principal reduction now for "instant" liquidity (in months)
Key points: We don't know the status of Genesis's liquid assets (stables, ETH, etc.); guarantee.
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How does claim priority work?
Secured creditors either get their collateral or cash equivalent to the value of the collateral. If the collateral is worth less than the claim, the claim is split into a secured claim for the collateral portion and an unsecured claim for the remainder, with the secured claim being paid in full and the unsecured claim receiving any payment to the unsecured creditor corresponding proportion. Even unsecured claims have a path to recovery if DCG raises equity and continues to operate.
After filing for bankruptcy, you should see the shape of the market to buy these claims, with hedge funds modeling expected recovery and time frames. They will bid on your claims below what they believe to be intrinsically valued and provide liquidity.
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best case scenario
DCG raises new equity and injects equity into Genesis Lending, Genesis Lending resumes as a going concern, and clients withdraw funds. (Fed policy shift and BTC surge)
But one of the key variables is the regulators, NYDFS, CFPB, FTC and SEC can all intervene in its status quo, Gemini and DCG are both under enormous pressure to keep retail investors intact, Gemini T&Cs do have a "class action waiver", But they should be represented.
Regulators may argue that retail investors do not have adequate disclosures (e.g. they do not fully understand risk factors such as PPM, balsht, etc.) and that it would be inappropriate for retail investors to remain intact if there are non-accredited investors The pressure will increase greatly.
Finally, I would like to clarify that I have not seen any evidence of any deception or fraud by Gemini or Genesis Lending or DCG, and that other business units are functioning well, they are all legitimate, regulated practices acting in their business interests By.
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