Genesis Creditors Will Get $3 Billion, How Does Bankruptcy Plan Compare to FTX?
Genesis' court-approved bankruptcy plan will see creditors repaid $3 billion. Photo by Sasun Bughdaryan on Unsplash.
Key Takeaways
- A bankruptcy court has approved a plan to repay Genesis creditors $3 billion in cash and crypto.
- This differs from FTX, which wants to make reimbursements in cash only.
- Genesis’ parent company DCG lost its bid to value claims based on January 2023 cryptocurrency prices.
Genesis has secured court approval to distribute $3 billion in cash and crypto to its creditors. In a victory for users of the platform, parent company Digital Currency Group (DCG) won’t be among the claimants.
The approved liquidation plan can be contrasted with the case of FTX, which will make repayments in cash only.
Genesis vs. FTX
When Genesis went under in January 2023, it closely resembled the spectacular collapse of FTX just three months earlier.
Both crypto exchanges suffered losses from their exposure to 3 Arrows Capital (3AC). After the hedge fund defaulted on its debts in June 2022, it set the stage for Genesis’ and FTX’s later financial difficulties.
Although they operated different business models and catered to different markets, there were similarities in the platforms’ demise. Despite claiming to be secure custodians, when push came to shove, neither was able to satisfy customer withdrawals.
However, while there are parallels between the bankruptcies, each company has pursued a different route to repaying creditors.
In the case of FTX, customers should recover 118% of the value of their assets based on cryptocurrency prices in November 2022. But in the intervening period, the price of Bitcoin climbed over 370%. This meant creditors were worse off than they would have been if they were repaid in crypto.
As such, Genesis’ alternative bankruptcy plan, which will see some creditors repaid in crypto, is arguably preferable.
Court Dismisses DCG Claim to Genesis Assets
Hoping to recover some of its losses from Genesis’ bankruptcy, DCG had argued for an FTX-style repayment plan that would have valued claims based on cryptocurrency prices in January 2023.
That approach may have resulted in the group recouping some of its losses as it would have been able to keep the crypto that was left over after repaying creditors. However, DCG failed in its bid to recover assets.
In his ruling, Judge Sean Lane wrote: “The record here clearly establishes that there is not sufficient value in the Debtors’ estates to provide DCG a recovery as equity holder after unsecured creditors are paid.”
Crypto Repayments a Boost for Genesis Customers
When Genesis initially filed for bankruptcy, there was little expectation that creditors would ever be made whole.
But thanks to booming cryptocurrency prices in the last 16 months, the court-approved bankruptcy plan will see Genesis repay as much as 77% of the Bitcoin and Ether owed to creditors, including Gemini customers.
The decision is a major boon for crypto claimants. But users owed fiat or stablecoins aren’t so lucky.
All in all, the company should dish out $3 billion. This is considerably less than the $14.5 billion and $16.3 billion FTX creditors expect to receive.
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