Genesis Global Holdco LLC, the holding company of troubled crypto lender Genesis Global Capital, has filed for Chapter 11 bankruptcy protection. Genesis’ lending division owes over $3.5 billion to its top 50 creditors – including crypto exchange Gemini, trading giant Cumberland and asset manager VanEck. Genesis’ custody, spot and derivative trading subsidiaries were not included in the filing. Digital Currency Group, a conglomerate that owns Genesis and CoinDesk, owes Genesis $1.65 billion, related to a $1.1 billion promissory note and $575 million loan DCG made following the collapse of Genesis’ largest trading partner, the defunct hedge fund Three Arrows Capital. A special committee is investigating lending activities between Genesis and DCG while Gemini exchange CEO Cameron Winklevoss said in a tweet he may sue DCG and CEO Barry Silbert related to the repayment of a $900 million loan. Separately, Farmington State Bank, a small community bank in the state of Washington with links to Alameda Research, is rebranding and leaving the crypto industry.
Who’s in Charge?
The U.S. Securities and Exchange Commission charged crypto lender Nexo with failing to register the offer and sale of its Earn crypto lending product, the latest action taken against a crypto lending company. Nexo has agreed to pay a $22.5 million fine to the SEC and another $22.5 million to settle similar charges by state regulators. Nexo faces regulatory issues elsewhere, including a probe by Bulgarian authorities into possible money laundering and tax offenses. Separately, Singapore-based exchange Huobi confirmed Thursday that Justin Sun, founder of Tron, and one of the richest people in crypto, is in fact leading the exchange after joining its Global Advisory Board. “Under the leadership of Justin Sun, it can be said that Huobi has embarked on the path to rebirth,” the blog post said, adding the exchange will also now take a hard line against so-called “rat trading.”
Central Banks
China has enabled smart-contract functionality for its “digital yuan” central bank digital currency (CBDC), through the popular food-delivery and e-commerce app Meituan. The government is also starting a daily raffle that e-CNY users will be automatically entered into to boost usage – at the end of 2022, the digital yuan accounted for 0.13% of the total renminbi circulation, the People’s Bank of China said. Meanwhile, stablecoin issuer Paxos proposed paying a steady “marketing fee” to “DeFi’s central bank” MakerDAO if it boosts its Pax USD (USDP) reserve holdings to $1.5 billion from the current $450 million. According to Paxos’ proposal posted in Maker’s governance forum, the company would only pay the daily fee if the “debt ceiling” is at $1.5 billion or higher on any given day. Finally, Fantom has launched a decentralized vault product to fund projects on its blockchain, developers said Friday. The “Ecosystem Vault” project would be financed by a 10% cut of blockchain transaction fees redirected from a decreased token burn mechanism of the FTM token.
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“[“It’s going to take a long time to not only to figure out the assets, and their collateral, but the value of their liabilities.”
– Wilk Auslander LLP Partner Eric Snyder, discussing Genesis’ bankruptcy filing, on CoinDesk TV’s “First Mover”
The Takeaway: Davos <3 Blockchain
About half of the estimated 500 companies attending the 2023 annual World Economic Forum (WEF) event in Davos, Switzerland, are technology companies and startups. You see them stretching out over the Promenade – the main street running through the city center where all the action happens. The showcases are demoing products and services in blockchain technology, artificial intelligence (AI), virtual reality (VR), robotics, 3D printing and the Internet of Things (IoT), offering a taste of the latest and greatest to come.
One of the most notable topics being discussed – on panels, at events, over live broadcast – is the future of money. Of course, when talking about the future of money you must also mention crypto. The conversations I’ve overheard or been a part of, so far, have concerned the pragmatic (using blockchain for traceability), the political (using blockchain for anti-corruption), the futuristic (decentralized finance and the metaverse) and the hopeful (incentivizing climate action through Web3).
It shouldn’t come as a surprise that people are talking about tech – the conversation was primed. The WEF’s recently released “2023 Global Risk Report” cited “technological disruption” as a top risk. With the high-profile busts of major crypto firms still fresh, there is pessimism among many in Davos about crypto.
As well as being a tech enthusiast, my day job is working in finance and innovation for a United Nations specialized agency and international financial institution called the International Fund for Agricultural Development (IFAD), which often gives me a first-hand look at how technological solutions are being applied. It’s clear, despite the recent negative headlines, that blockchain technology has more promises than problems.
It’s important to make the distinction between blockchain – the technology behind cryptocurrencies – and crypto itself. Decentralized digital currency as a concept is not going to disappear, but cryptocurrencies that are not backed by real assets in a significant way will likely not survive. We are going to see fewer industry players willing to take the financial and reputational risks of being exposed to crypto.
However, blockchain as a technology will continue to grow exponentially and its use cases expand. The real-world applications of blockchain, many already in use by organizations focused on international development, offer far greater utility and cost savings.
On a panel organized by the Global Blockchain Business Council covering the topic of “Blockchain for Public Institutions (Governments and International Organisations),” I spoke about the challenges of previous food crises across the world and how blockchain technology has and can be applied. Blockchain is already being used in development projects to increase traceability and auditability of funds from donors to farmers as well as the traceability of food, raw materials and energy in the agriculture supply chain – at a relatively low cost.
Take just one example of IFAD’s Kenya cereal climate-smart agriculture (KCAP) project. Through this initiative we proved that we could trace every dollar of the $100 million project spanning 50 downstream actors by placing the information on a secure blockchain. (While we’re blockchain agnostic, the project is using a hybrid public-private, permissioned version of Ethereum, ensuring that personal data is kept secure off-chain.) This system offers near-real-time development impact results, directly from farmers.
Using blockchain in this way not only brings full transparency of the flow of funds from donors to farmers but ensures compliance through automated checks with our anti-money laundering software. Further, it enables the U.N. to automate a number of services. For instance, farmers can now speed up payments to their vendors with a click of a button on a mobile phone.
Nowhere is the value and utility of crypto more apparent than in stablecoins, a type of cryptocurrency designed to keep its value pegged to a fiat currency. Stablecoins that are backed by reserves that are independently audited could be a means that cut through bureaucratic red tape and enable anyone to move money across borders in a matter of seconds.
Davos is where policy is made and world leaders meet. I like to think I’m helping to support the ongoing digital transformation by sharing stories about on-the-ground use cases of blockchain. Digital money is only becoming a more practical solution as the number of on- and off-ramps between crypto and fiat currencies increases – an easy lesson to remember when surrounded by the snow-capped Swiss mountains.
