Is the Parent Company of Genesis, DCG, on the Brink of Liquidation?

Author: Sohrab Khawas

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    The founder of the crypto research firm Messari, Ryan Selkis, explained on Monday that Genesis and Alameda had bad loans and intertwined relationships in the cryptocurrency space. Genesis may have to be liquidated, and the bankruptcy of its parent company Digital Currency Group (DCG) may result from the failure of FTX and Alameda, he stated.

    According to Selkis, bankruptcy cases are subject to a 90-day clawback regulation. The clawback date for Genesis is August 13 as a result of FTX declaring bankruptcy under Chapter 11 on November 11.

    He further said that it seemed like Genesis was responsibly winding down a lot of their positions and yanking borrow and looking at the current scenario, he said it doesn’t seem like Alameda or FTX are Genesis creditors today.

    He added, “If that’s true, then the two giants either had no relationship (unlikely) or they closed their positions.”

    “I’m not sure Genesis getting repaid a loan (even if it’s with Alameda customer funds) would be subject to clawback.My point is that there would likely be a large legal battle of this one so tough to define potential  range of liability outcomes.”

    Is the “10-year” DCG Promissory Note Callable?

    On a recent episode of Unchained’s “The Chopping Block,” managing partner at Dragonfly Capital Haseeb Qureshi also talked about the possible scenarios of Genesis going bankrupt. 

    Qureshi said that the $1.1 billion promissory note that the Digital Currency Group has to Genesis may be “callable” in the event of collapse, obliging DCG to pay the whole amount of the note right away. He also covered DCG’s estimated $2.1 billion purchase of Genesis’ “bad debt” from Three Arrows Capital (3AC).

    “This would make it much more likely that DCG has to pursue a recap vs. Genesis bankruptcy. DCG’s odds in bankruptcy court plummet if the promissory note was, in fact, callable. The lengthy silence could be a sign Genesis creditors are giving DCG time to figure it out.”

    Qureshi also spoke about two possible outcomes if Genesis filed for bankruptcy. First, Genesis files for bankruptcy and then pushes DCG into bankruptcy, starting a difficult bankruptcy process. The second scenario is that Genesis fails and the note is ultimately sold at an auction for less than it was originally worth, but DCG is somehow saved.

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