Genesis Global Capital, the lending arm of crypto investment bank Genesis Trading, halted withdrawals amid a liquidity crunch.
Citing “unprecedented market turmoil”, the Digital Currency Group-owned firm said that the collapse of crypto exchange FTX prompted too many withdrawal requests for the company’s liquidity to deal with.
After Genesis’s announcement, crypto platform Gemini suffered an outage. The Winklevoss-owned company attributed the problem to an issue with its cloud service provider, Amazon Web Services.
Gemini reassured that customers could withdraw their funds at any time and that all deposits are fully backed by its reserves. However, given that Gemini is dependent on Genesis for its “Earn” program, many believed that Gemini was going through a liquidity crisis, too.
According to Genesis’s documentation, Gemini Earn transfers customer deposits to Genesis, which in turn lends those assets to a fund. The fund pays interest on that loan, then Genesis takes a cut before returning the assets to Gemini. Gemini takes its own cut before finally returning the assets (plus interest) to its customers.
This is how many crypto platforms offer yields to their customers. But if the funds stop paying Genesis, the whole program could collapse. Gemini warned users that there might be delays in withdrawals of its Earn product, which lets customers earn yield on their crypto assets.
Not everyone is certain that Gemini will honor its customers’ deposits. Alex Krüger, an economist and crypto analyst, said: “Gemini Earn is finished, people using it will likely lose money.”