Genesis Lends $2.36 Billion To 3AC, Which Filed Chapter 15 Bankruptcy: What's Next?

Three Arrows Capital (3AC), a cryptocurrency hedge firm that just filed for Chapter 15 bankruptcy in New York, received a $2.36 billion loan from Genesis.

It required a margin of more than 80% on its loans to 3AC, and when 3AC failed to meet those criteria, it liquidated collateral. After that, it sought recovery of the outstanding debt through arbitration in New York.

What Happened: A division of the cryptocurrency lender owned by Digital Currency Group (DCG), Genesis Asia Pacific Pte Ltd. provided $2.36 billion in loans to the defunct hedge firm 3AC.

The precise amount of the debt has not previously been disclosed, despite earlier reports claiming Genesis faced a potential nine-figure loss as a result of its exposure to 3AC.

The arbitration procedure seemed to have been put on hold by Genesis after the consultancy firm Teneo was selected to supervise the liquidation of 3AC in late June. On July 1, 3AC submitted a Chapter 15 bankruptcy petition in New York.

According to a DCG representative, both the DCG and Genesis balance sheets are still solid. Genesis is well-capitalized and conducting business as usual with no further exposure to 3AC.

Teneo, the company chosen last month to handle 3AC's liquidation, posted a 1,157-page court document online on Monday that contained information about the 3AC debts.

In a letter Genesis sent to the American Arbitration Association on June 15, the company stated 3AC had broken two financing agreements signed in January 2019 and January 2020.

The company's loans to 3AC had a weighted average margin demand of more than 80%, which 3AC had not been able to fulfill, leading Genesis to liquidate its collateral, according to a series of tweets from Genesis CEO Michael Moro on July 6. He said that in order to have the funds "to operate and scale" its company moving ahead, DCG had accepted some Genesis obligations.

4/ Since then, we worked with @DCGco to find the optimal strategy to further isolate the risk. DCG has assumed certain liabilities of Genesis related to this counterparty to ensure we have the capital to operate and scale our business for the long-term.

— Michael Moro (@michaelmoro) July 6, 2022

As a result, a source with knowledge of the situation claims that DCG is now more vulnerable to possible losses associated with 3AC's borrowing than Genesis.