Will Genesis bankruptcy change the crypto lending business?

Genesis Global Capital, one of the leading crypto lenders in the industry, filed for bankruptcy protection on January 19, 2023. Digital Currency Group is a wholly owned crypto lending company.

The crypto lender decided to file for bankruptcy as it had ongoing problems after the third largest crypto exchange, FTX, filed for bankruptcy on November 11, 2023.

Genesis is not the first crypto lender to file for bankruptcy; earlier, Celsius Network, Voyager Digital and BlockFi decided to file for bankruptcy protection to secure themselves from bankruptcy.

While speaking to renowned crypto media, Edward Moya, Senior Market Analyst at Oanda noted, “The collapse of crypto lender Genesis has reminded traders that there is still a lot more cleanup to be done in the crypto-verse. You don’t need to be exposed to FTX to fail, and that theme could continue for a while for many distressed crypto companies.”

The CEO of Kaden Eco, a layer 1 blockchain, Francesco Melpignano believes that “the contagion from these declines continues to reverberate this year and perhaps the next few.”

Campbell Harvey, professor of finance at Duke University, was asked: Is it crypto lending kaputt? He replied: “I don’t think so.” He believes that the business model remains healthy and there is room for it in future finances.

Campbell is a writer and wrote the book “DeFi and the Future of Finance”.

What could explain this disregard for basic risk management practices? To another question posed by a finance professor, he replied: “It’s easy to start a business when prices are rising.”

The director of the venture capital firm Collider ventures, Eylon Aviv, believes that cryptocurrency lending is “an essential primitive for the growth of the crypto ecosystem.”

Meanwhile, speaking to crypto media, Eylon noted that “We are currently caught in a transitional limbo between centralized actors [Genesis, 3AC, Alameda Research] that have a scalable solution with poor risk management and handling arrangements that go awry; and decentralized actors [Compound, Aave] which have a resilient but non-scalable solution.”

On January 6, 2023, a crypto media outlet reported that Genesis laid off 30% of its workforce in its second round of layoffs to cut costs amid the ongoing downturn.

The crypto market has been struggling since the end of 2021, with several companies filing for bankruptcy during 2022. Among the biggest failures in crypto is one of the biggest and most catastrophic events that keep troubling the post-bankruptcy market.

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