Crypto lenders get hit by the FTX collapse

A crypto crisis was sparked by the collapse of the second-largest cryptocurrency exchange platform, FTX, which went bankrupt last week.

Crypto lenders get hit by the FTX collapse
Representations of cryptocurrencies plunge into water in this illustration taken, May 23, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

A crypto crisis was sparked by the collapse of the second-largest cryptocurrency exchange platform, FTX, which went bankrupt last week. Now, troubled crypto firms are starting to be rattled because FTX was like a central bank of the crypto world.

The cryptocurrency lender BlockFi, once worth US$3 billion, said last week that it would stop withdrawals and that it has "significant exposure" to Sam Bankman-Fried's crypto empire. Now, insiders say the company is preparing to file for bankruptcy within days. On Wednesday, the lending arm of crypto exchange Genesis suspended redemptions and new loan originations after facing an enormous request of withdrawals that exceeded its liquidity. It's now seeking an emergency loan for US$1 billion, according to the Wall Street Journal. Several other crypto hedge funds are revealing that much of their capital is stuck in FTX.

In the wake of FTX's collapse, billionaire twins Cameron and Tyler Winklevoss, founders of the Gemini crypto exchange, are also being dragged into the mess. Their lending program Gemini Earn is also suspending redemptions. Earn lets investors lend out their crypto and receive up to 8% interest in return. So now, over US$700 million of their customers' money is tied up, according to a person familiar with the matter.

Key comments:

"People are holding their breath at the moment, waiting or seeing if there's going to be another shoe to drop and what those shoes will be," said Gregory d'Incelli, co-founder of Scenius Capital Management. "People are still in shock. A lot of people are very wounded right now."

"In the crypto world, the minute you see a company or firm announce 'we're temporarily halting withdrawals' – yikes," said Daniel Roberts, editor-in-chief of Decrypt Media, a crypto-focused news outlet. "You put them on death watch…"


"We are working with the Genesis team to help customers redeem their funds from the Earn program as quickly as possible. We will provide more information in the coming days," said Gemini on its website. "This does not impact any other Gemini products and services. All customer funds held on the Gemini exchange are held 1:1 and available for withdrawal at any time."