After carrying a huge debt and shutting down TradeBlock, the former crypto empire DCG is now struggling for survival with one arm.

DCG, a former crypto empire that carried a huge debt and shut down TradeBlock, is now struggling for survival.

By Octopus Brother

Produced by Gyroscope Finance

According to Bloomberg, Digital Currency Group (DCG) will shut down its institutional trading platform TradeBlock on May 31, which provides trading execution, pricing, and bulk brokerage services for institutional investors. A DCG spokesperson said, “Due to macroeconomic conditions and the long crypto winter, as well as the challenging U.S. digital asset regulatory environment, we have decided to close our institutional trading platform business.”

As an industry leader with Grayscale and Genesis, two crypto stars, and numerous investment layouts, DCG was once the talk of the town, but with Genesis’ bankruptcy and the $630 million debt crisis unresolved, it is now in dire straits. Will this “Titanic” of the crypto industry sink in the end?

01, Genesis applies for bankruptcy, sparking rumors of DCG’s bankruptcy

At the beginning of the year, DCG was hit by Gemini’s debt collection, triggering rumors of a bankruptcy. Shortly thereafter, Genesis announced that it had applied for Chapter 11 bankruptcy protection.

Genesis was once one of the world’s largest crypto lending institutions, with its main businesses being market making and lending. In the FTX explosion, Genesis had a $175 million hole, which directly led to the suspension of redemptions and new loans for its lending department. According to overseas media reports, Genesis owes Gemini $900 million, which led to the exchange suspending withdrawals from Gemini Earn for its users in mid-November last year. In addition, Genesis has another group of creditors, with a total debt of $1.8 billion.

Faced with customer anger over the inability to withdraw and a series of lawsuits, Gemini was under enormous pressure. After six weeks of fruitless pursuit, Gemini had no choice but to issue a final ultimatum to DCG, leading to the news of “Gemini’s open letter to DCG demanding repayment of $900 million in debt.” In the open letter, Winklevoss (Gemini co-founder) claimed that DCG’s internal fund management was chaotic, borrowing about $1.675 billion from its subsidiary Genesis for other group businesses, which was originally funds owed by Genesis to Gemini Earn users and other creditors. Winklevoss demanded that Silbert (DCG founder) publicly commit to working together to resolve the issue by January 8, 2023.

It was widely believed in the industry that if DCG could not provide a satisfactory solution by January 8, Gemini might force Genesis into bankruptcy, which would obviously be a heavy blow to DCG. Because once Genesis enters bankruptcy proceedings, it will trigger the liquidation of DCG assets (based on redeemable loans), and DCG will be at risk of bankruptcy, and its subsidiary Grayscale Trust will also face major risks.

As events later proved, Genesis was unable to repay its debts and applied for bankruptcy protection. DCG, as the parent company of Genesis, was thus deeply involved in the bankruptcy crisis.

02, 630 million US dollars are still unpaid, and DCG is trapped in prison

On May 22, Gemini announced that as of May 19, DCG had not paid the approximately $630 million owed on May 11. Gemini stated that it is working with Genesis, DCG, and creditors to provide DCG with a grace period to avoid default and is considering sincere negotiations over a mutually agreed transaction. If an agreement cannot be reached, Gemini (along with other parties) is working with Genesis to propose terms for a revised restructuring plan that can be advanced without DCG’s participation.

To this end, Genesis submitted a motion to the bankruptcy court on May 19 seeking an extension of its exclusive period for proposing the plan. This will be a plan approved by Gemini. At the same time, Gemini is preparing to file a claim for more than $1.1 billion in digital assets to be returned to its 232,000 Earn users.

According to previous court documents, Genesis’ unpaid debt to its 50 major creditors exceeded $3.5 billion, including Gemini, Cumberland, Mirana, MoonAlpha Finance and VanEck.

After Genesis and DCG reached a “principled agreement”, a complete settlement agreement was submitted to the court in February of this year, and the original settlement agreement aimed to provide creditors with 80% of the funds they lost due to bankruptcy. Unfortunately, Genesis’ creditors upgraded their demands in the following months, which led to the initial settlement plan to collapse. As of May 22, Gemini plans to make a new claim to recover more than $1.1 billion in digital assets. As of January 19 this year, Genesis has not returned these assets to approximately 232,000 active loan holders of Gemini Earn.

DCG has failed to meet its debt obligations of $630 million, and this inability to resolve the loan has raised concerns as some had previously predicted that DCG may default on the loan.

It seems that DCG’s promise to help Genesis repay the debt has indeed become an empty promise.

03, Close TradeBlock, cut off one’s arm to survive?

As mid-year approaches, the crypto winter continues, and DCG, which experienced the bankruptcy of Genesis and the failure to repay the $630 million debt on schedule, did not get a chance to breathe.

According to a recent report by Bloomberg, DCG will stop operating TradeBlock on May 31, 2023, due to the uncertainty of the US digital asset regulatory environment and the unpredictable crypto “winter.”

The closure of TradeBlock is expected to have a significant impact on the crypto market, especially for institutional investors who rely on the platform for trading and pricing services. The decision to close TradeBlock is not surprising, as DCG had previously stated its intention to focus on its core business, which will enable the company to integrate its operations and simplify its products to better serve its customers.

TradeBlock was founded in 2013 and is a digital currency trading platform for institutional investors. The platform allows users to execute trades, access market data and analysis, and manage their digital asset portfolios. TradeBlock also offers a range of services, including Crypto industry currency indices, order management systems, and a suite of APIs for developers.

This year has been a bumpy one for DCG, which was once thriving in the crypto market.

Its subsidiary Grayscale is under pressure, and Fir Tree Capital Management, a New York hedge fund, previously filed a lawsuit against the company, accusing GBTC of “potential mismanagement and conflicts of interest.”

DCG’s financial situation is currently not optimistic. According to the financial report released by DCG last year, the crypto giant lost $24 million in the fourth quarter of 2022, with total revenue of $143 million. Its full-year 2022 consolidated revenue was $719 million. Regarding the company’s assets, the report shows that as of December 2022, total assets were $5.3 billion. Of these assets, only $262 million were cash and cash equivalents.

Multiple reasons have led to DCG’s current plight. On the one hand, due to the downward trend of the crypto market, DCG’s investments are extensive, and its returns have not met expectations. On the other hand, DCG misjudged the situation and continued to invest heavily in GBTC against the trend, even as GBTC premiums continued to decline, resulting in losses. Thirdly, and most criticized, is the debt relationship between DCG and its global largest crypto lending platform, Genesis, which has led to huge losses for DCG and made it besieged on all sides.

Shutting down TradeBlock and focusing resources on the core business of the group is a necessary measure.

04. Conclusion

DCG is a force to be reckoned with in the crypto world.

It has owned three well-known subsidiaries, Grayscale, CoinDesk, and Genesis, and invested in over 100 blockchain companies in more than 30 countries around the world, often ranking first on numerous blockchain investment institution lists. It is backed by a group of commercial and capital giants, including Mastercard, Bain Capital, the Canadian Imperial Commercial Bank, and New York Life Insurance. These institutions not only provide ample funding, but also use their resource advantages to help DCG expand its investment scope globally.

However, with the outbreak of the crypto liquidity crisis and the market downturn, the blind expansion and investment of the past have borne bitter fruit.

We are not afraid to imagine the worst outcome for DCG’s future, as DCG itself seems to be at a critical juncture of life and death. Whether there will be further actions after the shutdown of TradeBlock and whether the $630 million debt can be repaid remain unknown.

But for DCG, the difficult times may have just begun.

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