Shutting down TradeBlock: DCG’s desperate survival plan

According to Bloomberg, Digital Currency Group (DCG) will shut down TradeBlock, its institutional trading platform, on May 31. The platform provides trading execution, pricing, and bulk brokerage services to institutional investors. A DCG spokesperson stated: “Due to macroeconomic conditions, the long crypto winter, and the challenging US regulatory environment for digital assets, we have decided to wind down our institutional trading business.”

DCG, an industry leader with Grayscale and Genesis as well as numerous investment layouts, was once in the limelight, but with Genesis’ bankruptcy and $630 million debt crisis remaining unresolved, it is now in trouble. Will this “Titanic” of the crypto industry ultimately sink?

01 Genesis applies for bankruptcy, sparking rumors of DCG’s bankruptcy

At the beginning of the new year, DCG was hit by Gemini’s debt collection, triggering rumors of a bankruptcy. Shortly thereafter, Genesis announced that it had filed for Chapter 11 bankruptcy protection.

Genesis was once one of the world’s largest crypto loan institutions, with its main business being market makers and lending. In the FTX explosion incident, Genesis had a hole of $175 million, which directly led to the suspension of redemption and new loan issuance in its lending department. According to overseas media reports, Genesis owes Gemini $900 million, which caused the exchange to suspend user withdrawals from Gemini Earn in mid-November last year. In addition, there is another group of creditors to Genesis, with a total debt amount of $1.8 billion.

Facing the anger of customers who cannot withdraw funds and a series of lawsuits, Gemini is under great pressure. After six weeks of unsuccessful pursuit, Gemini had to issue a final ultimatum to DCG, resulting in the news “Full text of Gemini’s open letter to DCG: Demand repayment of $900 million debt.” In the open letter, Winklevoss (Gemini co-founder) claimed that DCG’s internal fund management was chaotic and borrowed about $1.675 billion from its subsidiary Genesis for other group businesses, while this money was originally owed by Genesis to Gemini Earn users and other creditors. Winklevoss demanded that Silbert (DCG founder) publicly commit to jointly solving this problem by January 8, 2023.

At that time, the industry generally believed that if DCG could not provide a satisfactory solution before January 8th, Gemini might force Genesis to file for bankruptcy, which would obviously be a heavy blow to DCG. Once Genesis enters bankruptcy proceedings, it will trigger the liquidation of DCG assets (based on redeemable loans), and DCG will be at risk of bankruptcy, and its subsidiary Grayscale Trust will also face significant risks.

What happened later was as expected, Genesis was unable to repay its debts and applied for bankruptcy protection. DCG, as the parent company of Genesis, was thus deeply involved in the bankruptcy storm.

02 More than $630 million is still unpaid, and DCG is in trouble

On May 22nd, Gemini announced that as of May 19th, DCG had not paid off the approximately $630 million debt due on May 11th. Gemini said it is working with Genesis, DCG, and creditors to provide DCG with a grace period to avoid default and considering good faith negotiations on a transaction agreed upon by both parties. If an agreement cannot be reached, Gemini (along with other parties) is cooperating with Genesis to propose terms for a revised restructuring plan that can proceed without DCG’s participation.

As a result, Genesis submitted a motion to the bankruptcy court on May 19th seeking an extension of its exclusive period for proposing the plan. This will be a plan that receives Gemini’s opinion. At the same time, Gemini is preparing to file a claim to recover over $1.1 billion in digital assets for its 232,000 active loan-holding Earn users from Genesis.

According to previous court documents, Genesis’ unpaid debt to its 50 major creditors exceeds $3.5 billion, including Gemini, Cumberland, Mirana, MoonAlpha Finance, and VanEck.

After Genesis and DCG reached a “principled agreement”, a complete settlement agreement was submitted to the court in February of this year, and the initial settlement agreement aimed to provide creditors with 80% of the funds they lost due to bankruptcy. Unfortunately, Genesis’ creditors upgraded their demands in the following months, which led to the breakdown of the initial settlement plan. As of May 22nd, Gemini plans to file a new claim to recover over $1.1 billion in digital assets. As of January 19th of this year, Genesis has not returned these assets to approximately 232,000 Gemini Earn users holding active loans.

DCG failed to fulfill its debt obligation of $630 million, which has raised concerns as there were earlier predictions that DCG might default on the loan.

It appears now that DCG’s promise to help Genesis repay its debt has indeed turned out to be an empty promise.

03 Closing TradeBlock to Stay Afloat?

As we reach the mid-year point, the crypto winter continues, and DCG, which has already experienced the bankruptcy of Genesis and the failure to pay the $630 million owed on time, has not had a chance to catch its breath.

According to a recent report by Bloomberg, DCG will shut down TradeBlock on May 31, 2023, citing the uncertainty of the US digital asset regulatory environment and the unpredictable crypto “winter.”

The closure of TradeBlock is expected to have a significant impact on the crypto market, especially for institutional investors who rely on the platform for trading and pricing services. The decision to close TradeBlock is not surprising, as DCG had previously indicated its intention to focus on its core business, which will enable the company to consolidate its operations and simplify its products for better customer service.

TradeBlock was founded in 2013 as a digital currency trading platform for institutional investors, allowing users to execute trades, access market data and analysis, and manage their digital asset portfolios. TradeBlock also offers a range of services, including crypto industry currency indices, order management systems, and a suite of APIs for developers.

This year has been a turbulent one for DCG, which had previously been thriving in the crypto market.

Its subsidiary, Grayscale, has faced pressure, with New York hedge fund Fir Tree Capital Management previously filing a lawsuit against the company, alleging “potential mismanagement and conflicts of interest” in GBTC.

DCG’s financial situation is also not optimistic. According to the financial report released by DCG last year, the crypto giant lost $24 million in the fourth quarter of 2022, with total revenue of $143 million. Its full-year 2022 consolidated revenue was $719 million. Regarding the company’s assets, the report shows that as of December 2022, total assets were $5.3 billion. Of these assets, only $262 million was cash and cash equivalents.

There are multiple reasons for the current predicament facing DCG. On the one hand, due to the downturn in the cryptocurrency market, DCG’s extensive investments have not achieved expected returns. On the other hand, DCG misjudged the situation and continued to increase its holdings in GBTC against the trend as GBTC’s premium continued to decline, leading to continued losses. The most criticized reason is the debt relationship between DCG and its largest global cryptocurrency lending platform, Genesis, which has resulted in huge losses and has left DCG in a difficult situation.

Closing TradeBlock and focusing resources on the core business of the group is a necessary move.

04 Conclusion

In the crypto world, DCG is an important player. It once owned three well-known subsidiaries: Grayscale, CoinDesk, and Genesis, and invested in more than 100 blockchain companies in more than 30 countries around the world. It is always at the top of many blockchain investment institution lists. Supported by a group of business and capital giants, including Mastercard, Bain Capital, Canadian Imperial Bank of Commerce, and New York Life Insurance, these institutions not only provide adequate funding but also help DCG expand its investment landscape globally.

With the outbreak of the cryptocurrency liquidity crisis and market downturn, DCG’s blind expansion and investment have brought about bitter consequences.

We are not afraid to imagine the worst possible outcome for the future of DCG, which seems to have reached a critical moment of life and death. It is unknown whether there will be any further action after the closure of TradeBlock, or whether the debt of $630 million will eventually be repaid.

But for DCG, the difficult times may have just begun.

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