Lending

Genesis unsecured creditors’ committee appointed

The seven-member committee will represent the creditors in court, having the right to participate in the reorganization plan.

A seven-member committee has been appointed to represent the interests of unsecured creditors in the Genesis Global bankruptcy case, according to court filings on Feb. 4. 

The committee will represent the creditors in court, having the right to be consulted before major decisions and to participate in the reorganization plan. Members are generally selected from a list of the 20 largest unsecured creditors.

Among the chosen members are Mirana Asset Management — an arm of crypto exchange Bybit — SOF International, Digital Finance Group and crypto exchange Bitvavo, along with three individual creditors, Amelia Alvarez, Richard Weston and Teddy Andre Amadeo Goriss.

The group was appointed by William Harrington, a representative for the United States Trustee — an executive branch agency within the Justice Department responsible for monitoring bankruptcy cases. Forming a creditor committee is an important step in bankruptcy proceedings.

Related: Genesis Capital’s fall might transform crypto lending — not bury it

With over $290 million exposure, Bitvavo sits among the biggest creditors, followed by Mirana with $150 million and $37 million from Digital Finance Group.

Genesis Global Holdings and its lending business subsidiaries, Genesis Global Capital and Genesis Asia Pacific — collectively known as Genesis Capital, filed for bankruptcy on Jan. 19, citing liabilities up to $10 billion.

The companies sought relief under Chapter 11 two months after disclosing liquidity issues due to the collapse of the crypto exchange FTX. Withdrawals have been suspended from Genesis Global Capital’s platform since Nov. 16, 2022

On Jan. 24, a group of creditors filed a securities class-action lawsuit against Genesis’s parent company, the Digital Currency Group and its founder and CEO, Barry Silbert, alleging violations of federal securities laws.

The lawsuit claims that Genesis committed securities fraud through a scheme to defraud potential and existing digital asset lenders by making false and misleading statements. In the plaintiffs’ view, Genesis intentionally misrepresented its financial condition in violation of the United States Securities Exchange Act section 10(b).

Solana DeFi protocol Everlend shuts down over liquidity issues

With FTX’s ripple effect on market liquidity, Everlend is closing its doors and urging clients to withdraw funds.

Solana decentralized finance (DeFi) protocol Everlend Finance is closing down its operations and urging clients to withdraw funds from the platform.

The company announced the decision on Twitter on Feb. 1, saying that despite having “enough runway” to continue operating, it would be a gamble under current market conditions. In particular, Everland’s team noted:

“Unfortunately, rn liquidity is just not there and this is so not just about Solana and the B/L market (on which Everlend is 100% dependent) keeps shrinking. In these conditions pressing forward is a gamble. And even though we had enough runway, we decided to stop now.”

Everlend also noted that deposits from underlying protocols are now in vaults, and the app will be in withdrawal-only mode until the funds are cleared. “[W]e suggest our users withdraw their funds asap.”

The team announced that all raised and unused funds, along with third-party contractor payments, will be “covered” in the next two weeks, indicating that relevant parties will be made whole. The protocol will also open-source its codebase, allowing others to continue building solutions on it.

Everlend’s roadmap for the coming months included the launch of its governance platform and money market. The protocol was ounded in 2021 and its investors included GSR, Serum and Everstake Capital.

According to DefiLlama, Everlend held almost $400,000 in total value locked (TVL) at its peak. However, the protocol suffered a significant decline in the wake of FTX’s collapse, which had a negative impact on market liquidity. 

Everlend is the second Solana-based DeFi protocol to shut down within a few days due to crypto winter. On Jan. 27, Friktion platform announced it would be closing down its user interface, citing a “tough market for DeFi growth.” 

The move came nearly a year after Everlend announced it had raised $5.5 million in a funding round. In November, the company even launched undercollateralized lending targeting institutional investors’ demand for DeFi, shortly before FTX contagion struck.

Examiner finds customer deception, ‘very Ponzi-like’ use of funds at Celsius

The court-appointed examiner found many intentional and unintentional shortcomings at the bankrupt crypto lender dating back to its founding.

Court-appointed examiner Shoba Pillay submitted her final report on select aspects of operations at bankrupt cryptocurrency Celsius on Jan. 31. The document was commissioned on Sept. 29 and is 470 pages long, not counting the 31 appendices.

Pillay is a former federal prosecutor and partner at law firm Jenner & Block. She looked at how customer cryptocurrency was stored at Celsius, the accuracy of the company’s public representations, whether new deposits were used to pay existing customers, the status of the company’s mining business and tax compliance.

“Celsius promoted itself as an altruistic organization,” Pillay wrote. However, “Behind the scenes, Celsius conducted its business in a starkly different manner than how it marketed itself to its customers in every key respect.”

The deception began immediately, Pillay found, when the Celsius initial coin offering in March 2018 failed to raise the hoped-for $50 million, coming in at $32 million. The Celsius community was not told of the shortfall. Nor did founder Alex Mashinsky make good on his promise to buy any unsold tokens.

Further, Pillay documented how the company and Mashinsky personally exerted control over the price of the native CEL token. That effort was not wholly successful, in part due to accounting shortcomings. As a result:

“Celsius did not earn sufficient yield on its crypto asset deployments to fully fund its CEL buybacks. As a result, it began using customer-deposited Bitcoin (BTC) and Ether (ETH) to fund its CEL purchases.”

In early 2021, as Bitcoin (BTC) and Ether (ETH) prices rose and customers withdrew more of the CEL cryptocurrency, Celsius “justified its use of customer deposits to fill this hole in its balance sheet on the basis that it was not selling customer deposits but instead posting them as collateral to borrow the necessary coins.”

Pillay noted that the Celsius coin deployment specialist described the actions as “very Ponzi-like” in internal communications. In addition, the company’s reward (interest) rates were not tied to yield generated from customer assets but were instead set to beat competitors’ offers. There was no policy for determining rewards until July 2021.

Between 2018 and June 30, 2022, the company paid out $1.36 billion more in rewards than it generated in revenue from customer assets.

When Terra’s UST stablecoin imploded last May, Celsius was no longer able to support the price of CEL. It paused withdrawals on June 13 but continued to pay rewards. At that point, the company was taking questionable measures. Pillay wrote:

“Between June 9 and June 12, Celsius did directly use new customer deposits to fund customer withdrawal requests.”

Celsius declared bankruptcy on July 13.

Related: New ‘Celsius token’ may be used to repay creditors: Report

The examiner found Celsius’ mining business, created as a subsidiary in October 2020, was “generally current” on its bills, with a few exceptions. She summed up the outstanding debt:

“Celsius Mining’s unpaid utility-related bills were $13,982,152. Celsius Mining’s mining hosts, however, hold prepayment balances totaling $46,809,756 that may be available to offset Celsius Mining’s obligations.”

Celsius defaulted on its debt to third-party mining contractor Core Scientific in October.

The tax picture was less rosy. Pillay found “significant tax compliance deficiencies.” This might be unsurprising, since Celsius had no tax professionals on its staff until June 2021. Even then, there was no systems created to pay use taxes and value-added taxes in a timely manner.

Pillay described widespread confusion about how applicable taxes for Celsius Mining were calculated or collected. Consequently, Celsius Mining may face tax bills upward of $20 million in the American states of Texas, Pennsylvania and Georgia, where it has mining operations. That amount may be reduced through retrospectively applied exemptions.

Celsius Network, a United Kingdom-based organization, is facing potential VAT liabilities. It has reserved $3.7 million for their payment.

Celsius’ tax problems were due only to lack of systems, communications and sophistication, Pillay said:

“The Examiner did not uncover any facts suggesting that Celsius or any of its business entities willfully or intentionally failed to pay its tax obligations.”

New York financial regulator investigates Gemini over FDIC claims: Report

Many Gemini Earn users reportedly claimed assets in their accounts had been protected by the Federal Deposit Insurance Corporation.

New York State’s Department of Financial Services is reportedly investigating cryptocurrency exchange Gemini over claims that the firm made regarding assets in its Earn lending program.

According to a Jan. 30 report from Axios, the “New York State agency that regulates Gemini” — the Department of Financial Services handles firms that fall under the state’s BitLicense regime — was investigating following reports that many users believed assets in their Earn accounts had been protected by the Federal Deposit Insurance Corporation. The government agency previously issued cease and desist orders to five crypto firms making similar claims, including FTX US.

It’s unclear if Gemini may have violated federal laws due to some customers seemingly taking away that the FDIC protected Earn products rather than assets held at financial institutions that are subject to such insurance. Under the Federal Deposit Insurance Act, individuals are prohibited from “representing or implying that an uninsured product is FDIC–insured or from knowingly misrepresenting the extent and manner of deposit insurance.”

Genesis, the crypto lender responsible for operating the Earn program in partnership with Gemini, halted withdrawals in November, citing “unprecedented market turmoil.” The firm subsequently filed for Chapter 11 bankruptcy in January. Reports at the time suggested that up to $900 million in Earn user funds could have been locked.

Since the fallout with the Earn program, Gemini has been the target of regulators and crypto users alike. In January, the U.S. Securities and Exchange Commission charged the exchange with offering unregistered securities through Earn, while a group of investors filed a lawsuit against Gemini founders Tyler and Cameron Winklevoss in December, alleging fraud.

Related: New York State issues guidance for banks seeking to engage in activities with crypto

Cameron Winklevoss has claimed on social media that Barry Silbert — the CEO of Genesis’s parent company, Digital Currency Group — as well as Genesis were responsible for defrauding more than 340,000 users in Gemini’s Earn program. According to the Gemini co-founder, Silbert, DCG, and Genesis orchestrated “a carefully crafted campaign of lies” aimed at covering up the lending firm’s lack of capitalization.

Cointelegraph reached out to the New York Department of Financial Services, but did not receive a response at the time of publication.

Aave deploys v3 on Ethereum after 10 months of testing on other networks

The new version includes features developers believe will increase capital efficiency and lower gas fees.

The third version of the crypto lending app Aave has now been deployed to Ethereum for the first time, according to a Jan. 27 Twitter thread from the Aave team. “Aave v3” was originally released in March 2022 and deployed on multiple Ethereum Virtual Machine (EVM)-compatible blockchains shortly afterward. Until now, Ethereum users only had access to the app’s older “v2” version.

Aave v3 includes several features intended to help users save on fees and maximize the efficiency of users’ capital. For example, high-efficiency mode allows the borrower to avoid some of the app’s more stringent risk parameters if the borrower’s collateral is highly correlated with the asset being borrowed. Developers say this may be useful for borrowers of stablecoins or liquid staking derivatives.

In addition, the “isolation” feature allows certain riskier assets to be used as collateral as long as they have their own debt ceiling and are only used to borrow stablecoins. Under the previous version, there was no way to limit what type of asset could be borrowed given a certain type of collateral. This meant that lower market cap and illiquid coins often couldn’t be used as collateral.

Related: Aave purchases 2.7M CRV to clear bad debt following failed Eisenberg attack

v3 also includes a gas optimization algorithm that the developers say will reduce gas fees by 20% to 25%.

The code for v3 was published back in November 2021. In March 2022, the Aave DAO approved an initial vote to deploy the new version. Over the next few months, v3 was deployed to Avalanche, Arbitrum, Optimism and Polygon. However, the Ethereum version of Aave has always had the most liquidity and v3 was not available on it previously.

According to the official proposal, the initial launch only has seven coins. The vote to launch began on Jan. 23 and lasted for two days. After supporters won the vote, the execution of the proposal was able to move forward on Jan. 27. Less than 0.01% of decentralized autonomous organization (DAO) members voted against the proposal.

In November 2022, Aave changed its governance procedures after it was hit by a $60 million short attack that ultimately failed.

Solana DeFi project Friktion shuts down its user platform

Friktion is urging its customers to withdraw assets from the protocol as the front-end shuts down.

Solana decentralized finance (DeFi) platform Friktion is shutting down its user interface and urging customers to withdraw their assets from the protocol, according to a statement on Jan. 26. 

The project’s website will no longer deliver the same services, operating in a withdrawal-only mode for all Volts and making deposits unavailable. Friktion’s Volts are structured products for DeFi investments that allow investors to earn a share of the revenue of investment pools, according to the company’s page.

The underlying protocol, however, will remain accessible on-chain. As cited by the company, the “tough market for DeFi growth in recent months” was the driving force behind the stakeholders’ decision:

“This decision was not made lightly, as Friktion has successfully navigated a number of challenges in the past, including Luna, FTX, and network outages. The company remains a strong believer in the future of Solana DeFi and will continue to support the ecosystem where it can.” 

Friktion’s application reached nearly 20,000 user wallets, passing $3 billion in traded volume and achieving over $160 million in total value locked (TVL) in the first half of 2022 before being impacted by the crypto winter. In November 2022, the company even launched undercollateralized lending targeting institutional investors’ demand for DeFi. 

The decision to shut down its user interface comes nearly a year after the company announced it had raised $5.5 million in a funding round in January 2022. Investors in the round included Jump Crypto, DeFiance Capital, Delphi Ventures, Solana Ventures and Tribe Capital among others.

Among the names on the platform’s board was Alameda Research, FTX’s sister company that played a crucial role in the exchange’s collapse in November 2022. Other board members included Genesis Trading, LedgerPrime, CMS Holdings and Orthogonal Trading.

Friktion did not immediately respond to Cointelegraph’s requests for comments.

New ‘Celsius token’ may be used to repay creditors: Report

It was suggested that the token could be part of a reorganization that would turn Celsius into a publicly traded, U.S.-regulated company.

Bankrupt crypto lending firm Celsius may issue its own token to repay creditors, according to a Jan. 24 report from Bloomberg that cites a video court hearing as the source of its information.

According to the report, Celsius attorney Ross M. Kwasteniet told the court that the firm is negotiating with its creditors on how to relaunch the platform and adequately pay them back. The new, relaunched version would be “a publicly-traded company that is properly licensed,” which would supposedly provide more money to creditors than simply liquidating the company. If approved by creditors and the court, the reorganized company would “issue a new token to creditors as part of a payout plan.”

The report stated that details of the plan will be filed with the court later this week.

Related: Opinion: Digital Currency Group’s Genesis implosion: What comes next?

Twitter user CelsiusFacts, who often tweets updates about the case, also claimed to have found details of the reorganization plan. According to a statement on Jan. 24, Celsius Network intends to become publicly traded and use “third-party services” to ensure that it complies with U.S. financial regulations. Users may be able to withdraw up to $7,500 worth of claims or 95% of the total, whichever amount is smaller. The new token would be issued to cover the remaining 5% or amounts above $7,500.

The court schedule for the case shows that an “omnibus hearing” was scheduled for Jan. 24, and the agenda was released by the court before it occurred. This hearing may have been the source of the reports from both Bloomberg and CelsiusFacts, although Cointelegraph has not been able to confirm this at time of publication.

Celsius blocked user withdrawals in June, citing a lack of liquidity caused by “extreme market conditions.” In July, it filed for bankruptcy. On Jan. 5, the New York Attorney General filed suit against Celsius founder Alex Mashinsky for allegedly giving “false and misleading statements” to investors.

Genesis bankruptcy case scheduled for first hearing

The first hearing in Genesis Capital’s bankruptcy case will be held on January 23, according to court filings.

The first hearing in Genesis Capital’s bankruptcy case will be held on Jan. 23 at 2:00 pm Eastern Time, according to court filings. Judge Sean H. Lane of the United States Bankruptcy Court for the Southern District of New York will hear the case.

Under Chapter 11 bankruptcy, companies can propose a reorganization plan to creditors while continuing business operations, Mark Pfeiffer, a bankruptcy attorney at law firm Buchanan Ingersoll & Rooney, told Cointelegraph.

As the first step in the bankruptcy proceedings, the court will decide whether to accept the relief requested under Chapter 11 by Genesis Global Holdco and two of its lending business subsidiaries, Genesis Global Capital and Genesis Asia Pacific — collectively known as Genesis Capital. A joint administration of the cases was also requested by the companies.

A committee for unsecured creditors will also be appointed by the United States Trustee as part of the proceedings. The committee will have the right to demand the companies are consulted before making major decisions or changes and to participate in the reorganization plan. Twenty of the largest unsecured creditors are usually selected for the committee, according to the court filings.

Related: Gemini and Genesis’ legal troubles stand to shake up industry further

Citing liabilities up to $10 billion, the companies filed for bankruptcy protection on Jan. 19, more than two months after disclosing a $175 million exposure to FTX and liquidity issues caused by the crypto exchange’s collapse. Withdrawals have been suspended from Genesis Global Capital’s platform since Nov. 16.

The Genesis Chapter 11 plan calls for a global resolution of all claims and the creation of a trust that will distribute assets to creditors, according to a press release. Under a “dual track process”, the companies will pursue the “sale, capital raise, and/or an equitization transaction” that would apparently enable its business “to emerge under new ownership.”

Genesis Capital’s parent company, Digital Currency Group (DCG), recently denied involvement in the bankruptcy filing, claiming that a special committee of independent directors recommended and decided to file for Chapter 11 bankruptcy protection. Only Genesis’ lending entities have filed for bankruptcy protection. Genesis Global Trading and Genesis’ spot and derivatives trading entity will remain operational.

Troubled crypto lender Vauld gets extended creditor protection

The company claims that the negotiations with potential crisis managers entered the “advanced stage.”

Embattled crypto lending platform Vauld was granted another period of creditor protection from a Singapore court. The company should come up with a revival plan before Feb. 28. 

As reported by Bloomberg on Jan. 17, Vauld has been granted more than a month to close its negotiations with one of two digital-asset fund managers to take over the executive control of the tokens stuck on its platform. Apparently, the Singapore high court was satisfied by the company’s claim that the negotiations have entered to the “advanced stage.”

In July 2022, the platform halted withdrawals for its 800,000 customers, citing unfavorable market conditions and an unprecedented $200 million worth of withdrawals in under two weeks. In August 2022, it was already granted a three-month moratorium to develop a restructuring plan for the business and provide a better outcome for its creditors. Back then the judge denied the company’s request for a six-month protection period, citing concerns that a lengthier moratorium “won’t get adequate supervision and monitoring.”

From the beginning of the first moratorium, it became known that Nexo, a Swiss-headquartered crypto lender, intended to acquire Vauld with all its assets. However, after Nexo’s own office in Bulgaria was raided by police, Vauld denied any possibility of this deal.

Related: 3AC, Coinflex founders collaborating to raise $25M for new claims trading exchange

That’s not the first time Singapore authorities have demonstrated their readiness to let troubled crypto companies fix their problems. Another major Singapore-based platform, Zipmex, was granted a three-month moratorium to sort out liquidity issues in August 2022.

However, the fate of crypto lending in the country remains unclear, with Singapore’s central bank proposing banning digital payment token service providers from offering “any credit facility” to consumers, including both fiat and cryptocurrencies.

Nexo sues Cayman Islands financial regulator over VASP license

The crypto lender claimed that the Cayman Islands Monetary Authority had placed “too much weight” on regulators’ enforcement actions in its decision to deny registration.

The same week that Bulgarian authorities were raiding Nexo’s offices and indicting four individuals for charges related to money laundering, the crypto lender filed suit in the Cayman Islands.

In a document dated Jan. 12, Nexo filed a lawsuit against the Cayman Islands Monetary Authority, or CIMA, for denying its registration as a virtual asset service provider (VASP) in the island nation. The crypto lender asked the court to overturn the financial regulator’s decision as it was “suitable” to provide crypto services to Cayman Islands residents.

According to court documents, Nexo applied to CIMA in January 2021, providing additional information at the request of the regulator. However, the monetary authority asked for clarification on the application last October, citing “certain legal and regulatory matters as noted in the news media” that Nexo had not disclosed. It rejected the application in December.

“The Authority breached its constitutional and statutory duty to provide comprehensible, satisfactory and sufficiently detailed reasons for its Refusal Decision,” alleged Nexo.

Related: Nexo investigation is not political, Bulgarian prosecutors say

Nexo claimed that CIMA had placed “too much weight” on regulators posing enforcement actions on the crypto lender, citing incidents in United Kingdom courts. State-level regulators in the United States also filed cease and desist orders against Nexo in 2022, but Nexo says in its lawsuit that this doesn’t mean it acted improperly:

“[Nexo] had diligently cooperated with all US states and federal regulatory inquiries and has been proactive in maintaining dialogue with the respective regulators […] There have been some regulatory ambiguities with respect to the laws and regulations applicable to digital assets in the US such that the fact of the regulatory enforcement itself does not connote any improper behaviour.”

The lending firm announced in December that it planned to gradually cease operations in the United States “over the coming months,” citing a lack of regulatory clarity.