DCG vs. Genesis: Billion-Dollar Battle

Digital Currency Group (DCG) has initiated a lawsuit against its subsidiary, Genesis, the defunct cryptocurrency lending platform. DCG is alleging that Genesis, contrary to expectations, realized a profit after its financial collapse and subsequent rescue.

According to a lawsuit filed in court records on Thursday, DCG asserts that the $1.1 billion loan extended to Genesis back in 2022 proved to be more than sufficient in offsetting its losses.

Genesis, a cryptocurrency lender, filed for bankruptcy protection in 2023 after lending capital to struggling crypto ventures like Three Arrows Capital. These companies faced defaults due to the volatile market and the widespread “crypto contagion” that swept the sector in 2022.

DCG stepped in to provide capital, aiming to facilitate the repayment of Genesis’s clients. However, in the recent lawsuit, DCG argues that the increased value of assets recovered from Three Arrows Capital effectively nullifies its obligations under the promissory note.

The lawsuit highlights that the assets originating from Three Arrows Capital were primarily in Bitcoin and shares of Grayscale Bitcoin Trust. These assets have experienced a substantial surge in value since 2022.

The legal filing states, “Genesis did not ultimately incur losses from the default by TAC. Instead, Genesis benefited to the tune of hundreds of millions of dollars, which it is entitled to retain.”

It further elaborates, “Due to the significant appreciation in cryptocurrency values since the bankruptcy filing date, the recoveries have surpassed the dollar value of creditor claims as of the filing date.”

Genesis, formerly controlled by DCG, enabled users to earn interest on their crypto holdings by lending them to other parties.

Genesis issued billions in loans to troubled crypto companies, including Three Arrows Capital and Alameda Research, both of which teetered on the brink of default as a result of the market-wide contagion stemming from the Terra collapse.

Following the collapse of FTX, Genesis announced a temporary suspension of withdrawals from its lending division, citing “unprecedented market turmoil.”

A DCG spokesperson stated, “DCG made considerable efforts to support Genesis voluntarily in 2022, including issuing a promissory note to Genesis to bridge a potential equity gap resulting from the collapse of Three Arrows Capital. We have consistently honored our contractual obligations under that note but now believe those have been fully satisfied. We are simply requesting the Court to confirm the valid and binding obligation was indeed fully satisfied.”

Genesis initiated legal action against DCG in May, accusing its parent company and CEO Barry Silbert of making fraudulent transfers from the lender as it was collapsing in 2022. They are seeking $3.1 billion in damages.

Editor’s note: This story has been updated to include a statement from DCG.