Crypto lender Genesis pauses FTX withdrawals following unprecedented collapse

Crypto’s largest lending business Genesis is suspending redemptions and new loans in wake of the FTX collapse.

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RACHELLE AKUFFO: Treasury Secretary Janet Yellen addressing the fallout from FTX's collapse this afternoon, saying, quote, "The recent failure of a major cryptocurrency exchange and the unfortunate impact that has resulted for holders and investors of crypto assets demonstrates the need for more effective oversight of cryptocurrency markets." And now another crypto lender is halting withdrawals. Yahoo Finance's David Hollerith joins us with the latest. David, the train just seems to keep on going.

DAVID HOLLERITH: Yeah, the ripple effects. This morning, Genesis' interim CEO-- Genesis is a prime broker of institutional trading in the crypto markets-- he told clients that it's temporary freezing its $2.8 billion lending business. And this is sort of crypto's largest lending business. And the announcement immediately created ripple effects. Gemini, the crypto exchange, has also paused its earn lending service, which is sort of the crypto exchange's own version of lending for customers.

And as for what has happened and why this has come out, it's obviously has to do with the FTX. Genesis said the events last week surrounding FTX created unprecedented-- an unprecedented market that led to an abnormally high amount of withdrawals. And as a result, their withdrawals exceeded their current liquidity.

Now, Genesis has two other seemingly healthier lines of business. And we don't have a lot of transparency into where they are since the end of Q3. But reputationally, this is obviously extremely damaging to have to pause withdrawals. And the concern now is what that will mean for their clients.

SEANA SMITH: And David, as we've been speaking, as we've been covering this story, obviously, the new details have been coming fast and furious. We know Sam Bankman-Fried continues to tweet out certain things, kind of giving us a glimpse inside FTX. What can you tell us just about FTX and where it stands, not only here in the US, but also Bahamas?

DAVID HOLLERITH: Yeah, Bankman-Fried is continuing to send tweets, and they're proving not to be as interesting as court documents today. There's a-- Bahamian liquidators actually have filed a lawsuit, a Chapter 15 bankruptcy case in the US and also in the Bahamas. And they're basically calling for jurisdiction of one part of FTX, which is called FTX Digital Markets.

We're not really sure how much of the company's assets that portion has, but they're rejecting the validity of the US bankruptcy court's jurisdiction in this case. And obviously, FTX is based in the Bahamas, but they did originally file Chapter 11 in the US. As to who's correct here, it's kind of hard to tell. It really comes down to who was authorized to initiate the bankruptcy in the first place. And the problem here is that FTX had no board of directors.

So there could be a reason to believe it would be the person who is now the CEO, John Jay Ray. And it could also easily fall to the liquidators' hands, in which case we could see something argued that would bring jurisdiction to FTX Digital Markets and also potentially the rest of the company to have it be-- the proceedings happen in the Bahamas. And in that scenario, there's two very different legal systems. And it could mean a lot less transparency into what's going on.