December 20, 2022

Liquidity at Genesis: A Study

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As an aftermath of the Sam Bankman-Fried and FTX’s fallout, other financial entities have been affected as well. Along with Three Arrows Capital, Voyager Digital, and Celsius Network, Genesis Exchange is no exception. Founded by the Digital Currency Group, Genesis Exchange is one of the pioneer centralized exchanges that has been operating since 2013 focusing on bringing crypto to institutional traders. Unfortunately, on the 16th of November 2022, it made a statement announcing that withdrawals have been paused due to liquidity issues.

The crypto space for 2022 has been riddled with news showing a “liquidity mismatch between assets and liabilities.” The same holds true for Genesis. To illustrate the phenomenon, Genesis has claims against its parent company, Digital Currency Group, that is worth $1.675 billion dollars, which is still due in June 2032; as well as an intercompany receivable due in May 2023.

Genesis claims that the full recovery of its users is still possible. However, it will take some time for their assets to be liquid and distributable. Besides Genesis’ Earn Program, other services are said to not be affected by this liquidity issue.

Courses of Action

In the hopes of regaining the trust of the public, Gemini promises to publish biweekly updates on their Earn Updates page. On the 3rd of December 2022, Kirkland & Ellis was assigned to be a counsel of the Creditor Committee, a relatively new department established by the company in light of the recent mishaps.

6 days after, Houlihan Lokey was assigned to be a Financial Advisor and was said to be building a plan towards a full recovery of Earn funds. As of this writing, no material updates were given as to this plan.


Around 3 months before this tragic announcement, their former CEO, Michael Moro stepped down. 20% of Genesis’ workforce has been slashed as well. The funds that Genesis loaned to Three Arrows Capital also vanished when the latter filed for bankruptcy as a result of the SBF domino effect.

Liquidity Risk

This is not exclusive to centralized exchanges. TradFi banks also carry this risk. Perhaps, what makes these two different is the regulatory support and the maturity of the market. Then again, what makes centralized exchanges and banks the same is the nature of the customer’s custody - ‘not your keys, not your coins’. Bank runs, that are usually thought of to be virtually impossible, have proven to be not really that impossible in several occurrences during 2022. Thankfully, DeFi and Web3 wallets are here to bring custody back to its users.