Will Genesis Bankruptcy Transform the Crypto Lending Business?
Genesis Global Capital, a leading cryptocurrency lender in the industry, filed for bankruptcy protection on January 19, 2023. Digital Currency Group wholly owns the Crypto lending company.
The crypto lender chose to file bankruptcy protection because it was continually in trouble after the third-largest crypto exchange, FTX, filed for bankruptcy on Nov. 11, 2023.
Genesis isn’t the first crypto lender to file for bankruptcy; Previously, Celsius Network, Voyager Digital, and BlockFi all agreed to file for bankruptcy protection to protect themselves from bankruptcy.
While speaking to a renowned cryptocurrency media outlet, Edward Moya, senior market analyst at Oanda, noted, “The demise of crypto lender Genesis has reminded traders that there is still a lot to do to clean up the cryptoverse. exposure to FTX to fail, and that theme may continue for a while for many struggling crypto firms.”
The CEO of Kadena Eco, a level 1 blockchain Francesco Melpignano believes that “the contagion from these collapses continues to reverberate this year and perhaps the next ones”.
Campbell Harvey, a finance professor at Duke University, was asked: Is cryptocurrency loan kaputt? He replied: “I don’t think so.” He believes the business model remains robust and there is room for it in future finance.
Campbell is an author and has also written a book “DeFi and the Future of Finance”.
What could explain this disregard for the basic practice of risk management? To the second question posed by the finance professor, he replied by saying: “It’s easy to start a business when prices go up.”
A principal at venture capital firm Collider ventures, Eylon Aviv, perceived cryptocurrency lending as an “essential primitive for the growth of the crypto ecosystem.”
Meanwhile, speaking to a cryptocurrency media outlet, Eylon noted that “We are currently trapped in a transitory limbo between centralized actors [Genesis, 3AC, Alameda Research] that they have a scalable solution with poor risk management and handshake deals that go belly up; and decentralized actors [Compound, Aave] that have a resilient but non-scalable solution.”
On January 6, 2023, a crypto media outlet reported that Genesis had laid off 30% of its workforce in the second round of layoffs to cut costs amid an ongoing downtrend.
The cryptocurrency market has been in trouble since the end of 2021, with several companies filing for bankruptcy throughout 2022. Among the major failures in cryptocurrencies is one of the biggest and most disastrous events that has continuously rocked the market since its failure .