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Digital Currency Group’s failure to pay $630m raises concerns

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Genesis Global Capital, the now bankrupt lending arm of Digital Currency Group (DCG), has failed to pay approximately $630 million due to creditors, leading to discussions among stakeholders about a potential default.

The situation highlights the challenges faced by the crypto industry and raises questions about the financial stability of other companies, including those affected by the FTX collapse.

DCG’s non-payment and consideration 

Digital Currency Group, the parent company of Genesis Global Capital, has not fulfilled its obligation to pay around $630 million, which was due last week.

This development has prompted discussions among Genesis, the Unsecured Creditors Committee (UCC), the Ad Hoc Group of Creditors (AHG), and Gemini, regarding potential forbearance options to prevent a default by DCG. 

The decision on whether to provide forbearance will be influenced by the parties’ assessment of DCG’s willingness to engage in good-faith negotiations for a consensual deal.

Pursuit of alternative solutions and Gemini’s claims

If a consensual deal cannot be reached, Gemini and other parties involved are working closely with Genesis to propose an amended plan of reorganization that does not rely on DCG’s participation, the team says. 

Genesis has already filed a motion with the bankruptcy court to extend its exclusivity period, seeking the opportunity to propose such a plan. Gemini, being an affected party, is actively providing input and support for this alternative approach.

Additionally, Gemini has been preparing the Gemini Master Claim, which is scheduled for filing on May 22, 2023. The claim seeks the return of over $1.1 billion worth of digital assets that Genesis has failed to refund approximately 232,000 Earn users who had active loans as of Jan. 19, 2023.

FTX contagion 

The recent failure of Genesis Global Capital to meet its financial obligations is intertwined with the aftermath of the collapse of the disgraced Sam Bankman-Fried’s FTX crypto exchange. 

Gemini, as a major client of FTX, has experienced disruptions in its operations, ultimately freezing its services in November.

Genesis Global Holdco, the parent company of Genesis Global Capital, subsequently filed for Chapter 11 bankruptcy protection in New York federal district court.

The collapse of FTX had far-reaching consequences, leading to the bankruptcy or financial distress of multiple crypto industry players. 

Established bitcoin (BTC) linked businesses such as Celsius, Voyager Digital, BlockFi, and Genesis Global Capital, along with hedge fund Three Arrows Capital (3AC), were among those impacted by the collapse. 

This series of events has left investors, ranging from small traders to financial institutions, at the mercy of bankruptcy proceedings and has raised concerns about the stability of the crypto lending ecosystem.

As the situation unfolds, investors and industry participants will be closely monitoring the outcome, hoping for a fair and equitable resolution to protect the interests of all parties involved.

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