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By now, news of the crypto lender Genesis stopping withdrawals has already made the rounds. The implications of this on other crypto platforms become apparent as time goes by, but being so early, there is still a lot to be seen as to how this pans out in the end. However, it is important to note that while Genesis was not a mainstream name like Celsius Network, its reach extends wider than any other crypto lender in the space.

Unpacking the impact of Genesis on crypto

In a Twitter feed, Blockworks founder Jason Yanowitz discusses how a Genesis collapse could be more impactful than FTX’s decline. The crypto lender that has powered a good number of Earn programs could trigger a catastrophic decline in the crypto market if it is unable to pull itself out of this hole.

Yanowitz first dives into the history of Genesis which was founded in 2013 when bitcoin was still in its infancy. It was billed as the first Bitcoin OTC desk before becoming the biggest crypto lending desk. Meanwhile, DCG, the parent company of Genesis, had expanded its reach into the crypto market, with companies like Luno, CoinDesk, Grayscale, and more.

Genesis itself was doing tens of billions in loans and trading volumes at the height of the bull market in 2021, lending funds to major crypto companies such as 3AC. When the latter collapsed, Genesis found itself with a $2.4 billion holdback and was bailed out by DCG.

https://twitter.com/JasonYanowitz/status/1592917807531929603?s=20&t=BZi9vEe4ho2O_iL-GV9vqQ

Things had declined from now on, but Genesis’ reach still stretched far and wide in the crypto market. Crypto exchanges such as Gemini have used Genesis to power their Earn products. This means that instead of holding deposited user funds, platforms like Gemini would take that crypto, lend it to Genesis, which in turn would lend it to other companies, collect loan repayments with interest, would return the funds that Gemini had sent, then Gemini would pay users the promised return.

Yanowitz notes that Gemini Earn is not alone in doing this, but institutions, family offices, and crypto whales use the same service. With Genesis stopping withdrawals, that means it can’t or doesn’t have the funds to pay out to these big investors. Where lenders like Celsius dealt directly with retail, Genesis deals with the “big fish”.

Total Crypto Market Cap Chart from TradingView.com

Total market cap remains low at $779 billion | Source: Crypto Total Market Cap on TradingView.com

The Blockworks founder explains that because Genesis deals with such large clients and major players in the crypto space, a crash would be very bad for the crypto market. “They sit in the direct center of the crypto capital markets. They hold funds. They help institutions to gain performance. They are the yield product for CeFi platforms. It’s not good,” added Yanowitz.

At the end of the line, Yanowitz advise users to withdraw funds from centralized financial platforms and consider using cold storage, a self-custody system such as Ledger. This is in line with the same advice that has been circulating in the crypto market for years; “Not your keys, not your coins.”

Featured image from CoinDesk, chart from TradingView.com

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