The founder of the world’s largest cryptocurrency exchange, Binance, is reportedly interested in acquiring Genesis’ lending book.
Blockworks spoke to a source familiar with the matter who explained that Changpeng 'CZ' Zhao had begun seeking more information on the state of Genesis' balance sheet as it considered a potential bid for Genesis' loan assets. Genesis included $2.8 billion in active loans in its third-quarter 2022 report.
Another source noted that any approach would likely be rejected by Genesis’ parent company, Digital Currency Group (DCG), and would need to float the figure beyond $2 billion.
Last week, Zhao’s Twitter announcement instigated a bank run that toppled FTX, which had a huge target on its back after revelations that its balance sheet was risky and potentially fraudulent.
And, with FTX down, it's clear that the level of interconnectedness in the cryptocurrency industry that sent shockwaves through May and June remains.
At the time, it was the collapse of Three Arrows Capital, following the decoupling of Terraform Labs’ algorithmic stablecoin project, that wiped out the remnants of last year’s bull run.
This time, Zhao may have spread enough influence within the crypto industry to become its undisputed leader. Binance had not responded to a request for comment by press time.
Multiple funds, service providers, lending and yield platforms across the crypto business have had exposure to FTX, and these businesses are beginning to feel the pinch of liquidity issues as investors withdraw funds from exchanges and stablecoins.
As liquidity evaporated, even the largest prime brokers were affected — including Genesis Trading’s lending platform. Genesis, a wholly owned subsidiary of Digital Currency Group, did not respond to a request for comment.
Genesis, which has already suffered hundreds of millions of dollars in losses during the cryptocurrency crash in May, reported a direct exposure of $175 million to FTX last week. As an emergency stopgap, DCG injected $140 million in equity into Genesis.
Founder Barry Silbert described DCG on his LinkedIn profile as being at the “center of the bitcoin and blockchain industry,” quite literally. With assets under management estimated at more than $50 billion and investments in dozens of blockchain-based startups and early-stage crypto companies, any sign of a DCG breach could easily undermine investor trust in the crypto industry.
If CZ has the reserves to acquire Genesis’ portfolio, Binance’s position at the top of the crypto pyramid could be cemented. A major competitor would be wiped off the map, and CZ might even find itself in the middle of deciding whether to continue supporting the lending schemes of other rivals — including two stablecoin issuers that compete directly with the BUSD Binance stablecoin Gemini and Circle are distributed by Paxos.
