Genesis twice denied major exposure positions, has blatant lying become a top risk control strategy?

After the FTX incident, how should investors interpret the official statements of major institutions? Genesis stated that it had no major exposure in the early stages of the 3AC and FTX incidents, but the fact is that not only did it happen, but the FTX incident also caused Genesis to announce a suspension of withdrawals. Has blatant lying become one of the risk control strategies?

Genesis

Genesis is a wholly-owned subsidiary of Digital Currency Group (DCG), whose entities include asset management companies, GBTC issuer Grayscale Investments, and well-known blockchain media CoinDesk.

How did Genesis respond to the 3AC crisis?

The liquidity crisis of Three Arrows Capital (3AC) began in mid-June. Crypto industry players have denounced themselves as having no business dealings with 3AC. However, Genesis CEO Michael Moro’s explanation on 6/17 was relatively vague:

We have mitigated losses from a large counterparty. The counterparty failed to meet the margin call. We sold the collateral, hedged the risk, and moved on. Business remains open and we are meeting all customer needs.

It wasn’t until 6/30 that Michael Moro acknowledged the counterparty as 3AC on Twitter.

Genesis originally provided a loan of up to $2.36 billion to 3AC, but it had a margin requirement of more than 80%. Therefore, when 3AC failed to maintain the conditions, Genesis sold the remaining collateral. At this time, the outside world still did not know the scale of the loss.

Later, 3AC declared bankruptcy and entered the judicial process, and the released legal documents showed that Genesis claimed $1.2 billion from 3AC.

Michael Moro also announced his resignation on 8/25.

Genesis encounters FTX incident again

Genesis first clarified on Twitter on November 9 that it had no major exposure positions and did not hold any exchange platform coins, claiming that their experienced trading and risk control teams have been continuously evaluating credit risks, volatility, and liquidity in the market. wait.

It was not until the evening of 11/16 that Genesis announced that it would suspend withdrawals due to the FTX incident.

Genesis stated that 3AC's default has had a negative impact on their liquidity, and the FTX incident has caused the demand for withdrawals to exceed the platform's liquidity. After consulting with professional and legal teams, Genesis decided to suspend the redemption and application functions of the loan business.

We recognize how challenging this past week has been due to the impact of the FTX news. At Genesis we are entirely focused on doing everything we can to serve our clients and navigate this difficult market environment.

— Genesis (@GenesisTrading) November 16, 2022

Even institutional lending platforms can be so opaque, so it’s no wonder that smaller platforms began to make strange announcements during the crisis.

This article Genesis twice denied major exposure positions, has blatant lying become a top risk control strategy? First appeared in Chain News ABMedia.