Digital Currency Group has sued its subsidiary Genesis, claiming that the collapsed crypto lender has actually profited in the long-term following its collapse and subsequent bailout.
In a lawsuit filed Thursday, DCG said that the $1.1 billion loan it gave to Genesis in 2022 was ultimately more than enough to cover its losses.
Crypto lender Genesis went bankrupt in 2023 as it had lent money to collapsed crypto firm Three Arrows Capital and other firms during the bear market and “crypto contagion” that spread across the industry in 2022.
DCG stepped in with capital to help repay Genesis customers. But in Thursday’s lawsuit, DCG argued that due to a rise in the value of recovered collateral from Three Arrows Capital, its obligations under the promissory note have been reduced to zero.
This, the lawsuit states, is because the assets from Three Arrows Capital were in Bitcoin and Grayscale Bitcoin Trust shares that have shot up in value since 2022.
“Genesis ultimately suffered no loss from TAC’s default; rather Genesis has profited by hundreds of millions of dollars (which Genesis is entitled to keep),” the lawsuit said.
It added: “Because of the significant appreciation in cryptocurrency values since the petition date, this has resulted in recoveries that exceed the dollar value of the creditors’ claims as of the petition date.”
Genesis was a crypto lender run by crypto behemoth DCG. It allowed users to earn cash on their crypto holdings by allowing them to be loaned out to others.
Genesis Sues DCG, Seeks Recovery of Over $3.1B in Note and Asset Transfers
Genesis made billions of dollars in loans to beleaguered crypto firms like Three Arrows Capital and the FTX-linked Alameda Research, which were about to default on their debt due to market contagion stemming from the collapse of Terra.
When mega digital asset brand FTX collapsed, Genesis announced to clients that it would pause withdrawals from its lending arm due to the “unprecedented market turmoil.”
“DCG took extraordinary efforts to voluntarily support Genesis in 2022, including by issuing a promissory note to Genesis to help close a potential book equity gap resulting from the collapse of Three Arrows Capital,” a DCG spokesperson told Decrypt on Friday. “We have consistently met our contractual obligations under that note, but believe those have now been fully satisfied. We are simply asking the Court to confirm that the valid and binding obligation was fully satisfied.”
Thursday’s lawsuit comes after Genesis in May sued DCG, alleging that its parent company and CEO Barry Silbert made fraudulent transfers from the lender as it was collapsing in 2022. It’s seeking $3.1 billion in damages.
Editor’s note: This story was updated after publication to include a statement from DCG.
