Genesis Global Holdco LLC, a prominent player in the cryptocurrency industry, has finalized a court-approved bankruptcy liquidation plan. This plan will return $3 billion in customer assets, amounting to 77% of the total claims, following the company’s Chapter 11 bankruptcy filing in January 2023. This article delves into the key aspects of this significant development, the reactions from the market, and the implications for the Digital Currency Group (DCG).

The Bankruptcy Filing and Initial Market Reactions

In January 2023, Genesis Global Holdco LLC and its subsidiaries filed for Chapter 11 bankruptcy protection in New York. This move was necessitated by substantial losses stemming from the collapses of Three Arrows Capital and FTX, leaving Genesis with over $3.5 billion in debt to its top 50 creditors. Initially, the market was highly skeptical about the prospects of customers recovering their assets. The bankruptcy claim marketplace, Xclaim, began trading Genesis claims at just 35% of their account balance value.

Court Approval and Asset Distribution

Recently, Genesis secured court approval to distribute $3 billion in cash and cryptocurrency to its creditors, representing approximately 77% of the total value of customer claims. This court-approved liquidation plan has been welcomed by many, though it notably excludes the Digital Currency Group (DCG), the parent company of Genesis, from any payout.

Trading of Claims and Market Dynamics

As of today, the trading of Genesis claims has significantly improved. Claims for bitcoin or ether over $10 million are trading between 97-110%, while smaller claims under $1 million are trading between 74-94%. Claims involving fiat currency or stablecoins in Genesis accounts are trading between 89-91% for amounts between $1-10 million, and 73-88% for claims under $1 million. These figures reflect a more optimistic outlook compared to the initial post-bankruptcy sentiment.

Exclusion of DCG from Payouts

Judge Sean Lane, in his ruling, emphasized that there is insufficient value in Genesis’s estates to provide DCG a recovery as an equity holder after unsecured creditors are paid. The size of the creditor claims means that DCG is effectively out of the money by billions of dollars, even under the valuation method proposed by DCG. DCG had previously argued for customer claims to be capped at the value of cryptocurrencies as of January 2023, hoping this would facilitate full repayment to customers and allow for a recovery for DCG. However, this argument was not upheld in court.

Financial Practices and Scrutiny

The filing revealed that DCG assumed $1.1 billion of Genesis’s debt from the Three Arrows Capital collapse with a 10-year promissory note. However, this illiquid obligation failed to cover the losses, drawing scrutiny towards DCG’s financial practices. Furthermore, DCG and Genesis had multiple credit lines between them, leading to a lawsuit when Genesis accused DCG of missing payments on these loans.

Repayment Plan and Future Steps

In November 2023, DCG and Genesis reached a repayment plan agreement. To settle a lawsuit over $620 million in loans, DCG has paid $227.3 million so far and plans to pay another $275 million by April. This repayment plan is a crucial step towards resolving the financial entanglements between the two entities.

Conclusion

The finalized bankruptcy liquidation plan marks a significant milestone in Genesis’s recovery process, ensuring that a substantial portion of customer assets will be returned. While DCG will not receive any payout, the court’s decision underscores the importance of prioritizing unsecured creditors. As the cryptocurrency industry continues to navigate these turbulent times, the resolution of Genesis’s bankruptcy case will undoubtedly serve as a precedent for future insolvency proceedings.