Original Author: Brother Octopus
Original source: Gyro Finance
Digital Currency Group (DCG) will shut down its institutional trading platform TradeBlock, which provides trade execution, pricing and prime brokerage services to institutional investors, on May 31, Bloomberg reported. “Due to macroeconomic conditions and the prolonged crypto winter, as well as the challenging U.S. digital asset regulatory environment, we have decided to close our institutional trading platform business,” a DCG spokesperson said.
DCG, as an industry leader with Grayscale and Genesis two encrypted star companies and numerous investment layouts, was once in the limelight, but with the bankruptcy of Genesis and the unresolved debt crisis of 630 million US dollars, DCG has been imprisoned. Will the "Titanic" of the encryption industry sink in the end?
01 Genesis filed for bankruptcy, triggering rumors of DCG bankruptcy
At the beginning of the new year, DCG was triggered by Gemini’s debt collection, and Genesis announced that it had applied for Chapter 11 bankruptcy protection shortly thereafter.
Genesis used to be one of the largest crypto lending institutions in the world. Its main business was market maker and lending. During the FTX storm incident, Genesis had a hole of 175 million US dollars, which directly led to the suspension of redemption and new transactions in its lending department. disbursement of loans. According to overseas media, Genesis owed Gemini USD 900 million in funds, which caused the exchange to suspend users’ withdrawals from Gemini Earn in mid-November last year. In addition, Genesis also has another group of creditors, and the total debt amount has reached 1.8 billion Dollar.
Faced with the anger of customers who cannot withdraw cash and the ensuing lawsuits, Gemini is under great pressure. After six weeks of fruitless pursuit, Gemini could not issue an ultimatum to DCG, so there was the news of "Gemini Lianchuang's Open Letter to DCG: Demanding the Repayment of 900 Million U.S. Dollars in Arrears". In the open letter, Winklevoss (co-founder of Gemini) claimed that DCG's internal fund management was chaotic, and it borrowed about US$1.675 billion from its subsidiary Genesis for other businesses within the group, and this fund was originally owed by Genesis to Gemini Earn users and other creditors funds. Winklevoss asked Silbert (DCG founder) to make a public commitment to work together to solve this problem by January 8, 2023.
At that time, the industry generally believed that if DCG could not provide a satisfactory solution before January 8, then Gemini might force Genesis to go into bankruptcy liquidation, which was obviously a heavy blow to DCG. Because once Genesis enters bankruptcy proceedings, it will trigger the liquidation of DCG assets (based on redeemable loans), DCG will be at risk of bankruptcy, and its subsidiary Grayscale Trust will also face major risks.
Then, as the rumors predicted, Genesis filed for Chapter 11 bankruptcy when it couldn't pay its debts. DCG, as the parent company of Genesis, is also deeply involved in bankruptcy.
02 With $630 million outstanding, DCG is in jail
On May 22, Gemini issued an announcement stating that as of May 19, DCG had not paid approximately US$630 million in arrears due on May 11. Gemini said it was working with Genesis, DCG and creditors to provide DCG with a grace period to avoid default and to consider entering into good-faith negotiations on a mutually agreeable deal. If an agreement cannot be reached, Gemini (along with other parties) is working with Genesis to propose terms for a revised restructuring plan that could proceed without DCG's consent to participate.
To that end, Genesis filed a motion with bankruptcy court on May 19 seeking an extension of the period of exclusivity it had to propose the plan. This will be a plan with input from Gemini. Meanwhile, Gemini is preparing a claim for Genesis to return more than $1.1 billion in digital assets to its 232,000 Earn users.
Genesis has more than $3.5 billion in outstanding debt to its 50 major creditors, including Gemini, Cumberland, Mirana, MoonAlpha Finance and VanEck, according to previous court filings.
A full settlement was brought to court in February after Genesis and DCG reached an "agreement in principle", and the original settlement was designed to give creditors 80% of the money they lost through bankruptcy. Unfortunately, Genesis' creditors escalated their demands in the ensuing months, causing the original settlement plan to fall apart. By May 22, Gemini plans to file a new claim to recover more than $1.1 billion in digital assets. As of January 19 this year, Genesis had not returned these assets to the approximately 232,000 Gemini Earn users who held active loans.
DCG failed to meet its $630 million debt obligations, an inability to resolve loans that has sparked concerns that DCG may default on its loans.
Now it seems that DCG's previous promise to help Genesis repay its debts has indeed become a blank check.
03 Turn off TradeBlock and survive with a broken arm?
The time came to the middle of the year, and the crypto winter continued. DCG, which experienced the bankruptcy of Genesis and failed to repay $630 million in arrears, did not get a chance to breathe.
According to a recent Bloomberg report, DCG will cease operations of TradeBlock on May 31, 2023, citing uncertainty in the U.S. digital asset regulatory environment and an unpredictable crypto “winter.”
The closure of TradeBlock is expected to have a significant impact on the crypto market, especially for institutional investors who rely on the platform for trading and pricing services. The decision to shut down TradeBlock isn't surprising, as DCG has previously stated its intention to focus on its core business, a move that will allow the company to consolidate its operations and simplify its products to better serve customers.
Founded in 2013, TradeBlock is a digital currency trading platform for institutional investors that allows users to execute trades, access market data and analytics, and manage their digital asset portfolios. TradeBlock also offers a range of services, including a Crypto industry currency index, an order management system, and a suite of APIs for developers.
This year has been an uneven year for DCG, which has been in the crypto market like a fish in water.
Grayscale, its subsidiary, is under pressure after New York hedge fund Fir Tree Capital Management filed a lawsuit against the company, accusing GBTC of "potential mismanagement and conflicts of interest."
DCG's financial situation is currently not optimistic. Judging from the financial report released by DCG last year, the encryption giant lost $24 million in the fourth quarter of 2022, with total revenue of $143 million. Its full-year 2022 consolidated revenue is $719 million. Regarding the company's assets, the report shows total assets of $5.3 billion as of December 2022. Of these assets, only $262 million was cash and cash equivalents.
There are several reasons for the predicament DCG is now facing. On the one hand, due to the downward trend of the encryption market, DCG has invested extensively, and the income has not met expectations; on the other hand, DCG has misjudged the situation. In the case of continuous decline in the GBTC premium, it has continued to increase GBTC against the trend and has been in a state of loss; third. The most criticized is the debt relationship between DCG mentioned above and Genesis, the world's largest encrypted lending platform, which has caused it to bear huge losses, which has led to the current embarrassment.
Closing TradeBlock, surviving with a broken arm, and concentrating resources on the core business of the group is already a last resort.
04 Epilogue
In the encrypted world, DCG is an existence that cannot be ignored.
It once owned three well-known subsidiaries of Grayscale, CoinDesk and Genesis, and has also invested in more than 100 blockchain companies in more than 30 countries around the world in a low-key manner, and has been active at the top of the list of many blockchain investment institutions all year round. Backing it is a group of business and capital giants, including MasterCard, Bain Capital, Canadian Imperial Bank of Commerce and New York Life Insurance, among others. These institutions not only provided sufficient funds, but also helped DCG expand its investment territory on a global scale with the help of its own resource advantages.
With the outbreak of the encrypted liquidity crisis, the market went down, and the blind expansion and investment in the past ushered in a bitter fruit.
We are not afraid to imagine the future of DCG with the worst results. DCG itself seems to have reached a critical moment of life and death. Whether there will be a next step after closing TradeBlock, and whether the $630 million in arrears will eventually be repaid are currently unknown.
But for DCG, difficult times may have just begun.
