As we all know, Genesis is the only full-service supplier of prime brokerage in the crypto, as well as the Digital Currency Group’s signature. The role is to assist huge institutions in risk management. Previously, Genesis’ quest for $1 billion remained unresolved. How would they solve the crisis? Let us discuss about Prime Brokers and Genesis.
What is Prime brokerage?
The prime brokerage business is primarily in charge of three aspects:
-Custody assets
OTC (such as the ability to buy and sell unlisted securities on trading platforms and block trades)
Provide credit (derivatives and research reports can be provided)
Traditional prime brokers offer access to listed securities, which they fund with bank capital. OTC transactions contain unlisted securities, and the distinction is important because OTC transactions are not cleared centrally.
Centralized clearing means that trades are matched 1:1 for netting and clearing at a clearinghouse. Clearing companies are well-capitalized and well-supervised.
Traditional prime brokers benefit from a robust inter-dealer market. Because OTC products are not listed on trading platforms and do not have a centralized clearinghouse, this market is crucial. This allows them to minimize directional exposure and instead concentrate on capturing bid-ask spreads or financing fees.
Genesis, a pioneer in the crypto field, lacks the liquidity, standards, inter-dealer relationships, clearing houses, and deposit financing that traditional prime brokers have.
This reveals two critical points
- The sources of funding for Genesis include deposits through wealth management products such as Gemini Earn and Circle Yield, and these are short-term funds. If those sources of funding dry up, Genesis will be forced to liquidate its loan at an extremely low price.
In addition, long-term loans are illiquid and may not be redeemable by market standards, which exposing Genesis to the risk of a bank run. Genesis cannot liquidate its assets fast enough if everyone withdraws deposits at the same time
- In derivatives and OTC books, Genesis is both a buyer and a seller. But if their counterparty such as 3AC fails, then Genesis is exposed. The insolvency of the counterparty means Genesis now faces directional exposure and capital losses. When 3AC goes bankrupt, market participants can review 3AC’s bankruptcy filing and determine the size of the capital loss. This could lead to a loss of confidence in markets and bank runs.
According to public reports, Genesis has lost more money due to the bankruptcy of 3AC and FTX than Genesis has created since its inception. Losses at 3AC alone exceeded $1 billion.
So what should DCG do next? There are two ways.
Raise capital from DCG-invested enterprises. Then inject into Genesis and restore market confidence. However, Genesis is relying on capital and borrowing to make loans. The depletion of funding sources causes a decrease in asset return, and the NPV is negative.
In order to save Genesis and fill the hole in the market, it needs a cheap and reliable source of funding, more capital and a network of dealers. So the right thing to do for Genesis is to be acquired.
Potential acquirers could be GS, ICE or investment banks. But it won’t be easy because of the risks, regulatory scrutiny, asset quality issues, risk-off, etc. If there is no acquirer, then DCG will be needed to plug this hole, but DCG will not add funding to a negatively profitable project at a time of high interest rates, which will mean that Genesis will go bankrupt.
MEME Crypto Exchange believes that as an institution, Genesis has brought a lot to the crypto space. It’s impossible to ignore, and the Genesis could be a gem in the right hands.
MEME Crypto Contract Exchange invested by large institutions in the crypto field, we have always put the interests of users first since our establishment. Many institutions move user assets to make huge profits, which will eventually be backlashed by the market. User trust can make you, or drag you to hell. For the crypto industry, the crisis of trust is the biggest crisis. our MEME crypto contract exchange will always remember this and strictly implement it.
MMEX is the exchange with the lowest liquidation risk. In the future, MMEX aims to become a global innovation laboratory for crypto trading, providing users from all countries with continuous, safe and innovative integrated financial services.
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