Scoop: Crypto exchange Bitvavo owed up to $300M by Genesis

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European crypto exchange Bitvavo is part of the so-called creditors’ committee that is trying to wrestle more than $1.8 billion back from Barry Silbert’s Genesis Trading and its parent company, Digital Currency Group (DCG). This is according to sources familiar with the matter who spoke directly to Protos.

When Bahamas-based exchange FTX collapsed in November, Genesis was forced to suspend redemptions. As a result, in addition to freezing $175 million of Genesis’ trading assets, it also left Genesis and DCG owing three major creditors — $900 million to the Winklevoss twins’ Gemini, $350 million to a group of investors led by investment firm Eldridge, and, according to sources, up to $500 million to Bitvavo. (For the record, Bitvavo puts this figure at closer to $300 million.)

Bitvavo allegedly also saw its staking program affected. The platform offers up to 10% yield on staked assets and typically claims more than $40 million in daily transaction volume.

As part of their efforts to claw back their money, Gemini and Bitvavo have formed a creditors’ committee. They have also retained law firm Kirkland & Ellis as legal counsel and global investment bank Houlihan Lokey as financial advisor.

If the creditors are successful in taking back their funds, it could significantly cut into Genesis Trading’s finances.

The Winklevii provide an update about their troubled offering, Gemini Earn.

Read more: What’s up with crypto exchange Gemini and its ties to FTX?

Protos has contacted Bitvavo for comment and will update this story if and when new information becomes available.

Bad debts between Genesis and Gemini

According to Gemini Earn’s FAQ, it might be possible to get Gemini Earn users’ money back if Genesis Trading and DCG can collect on loans from their largest debtors.

Genesis and DCG could also raise funds in a new equity funding round or pursue a restructuring of their debt. This, however, would take time.

DCG recently injected $140 million worth of collateral into Genesis Trading to supplement the funds that were frozen on FTX. However, the companies will need new funding sources to pay back their debts.

The original terms of the loan package with Eldridge indicate that the balance is due in 2023. However, Eldridge now aims to collect as soon as possible due to the vulnerable positions of DCG and Genesis.

CEO Barry Silbert told shareholders that DCG used the loan from Eldridge and a $575 million loan from Genesis to fund investment opportunities and repurchase shares from non-employee shareholders.

DCG is pursuing a $1.2 billion claim in the Three Arrows Capital (3AC) bankruptcy case. It took over the claim to protect Genesis Trading. Silbert says DCG is on track to earn $800 million in revenue in 2022.

Despite the earnings, Genesis and DCG remain vulnerable due to the $1.7 billion in debt to outside companies and the loss of $175 million in the FTX meltdown. They might recover if they can claw back a significant portion of the funds from debtors like 3AC. However, they might have to go through restructuring to resolve the issue.

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Update 17:35 UTC, Dec 15: Since this article was published, Bitvavo has contacted Protos to confirm that it is/has been a member of the so-called creditors’ committee.

According to Bitvavo, it has also conducted multiple lending transactions with Genesis in the past and is actually pursuing a net claim of somewhere in the region of $250-$300 million. This, it says, is dependent on the value of the underlying crypto assets.

Bitvavo told Protos, “Based on the information provided by Genesis/DCG, it seems likely that the full amount will be repaid over time.

“In the meantime, and if required, Bitvavo decided to step in to protect users (using off-chain staking services) to ensure that customers can have access to their funds when needed.”

The headline has also been updated to reflect the $300 million figure quoted by Bitvavo.