On December 11th, the founder of the crypto research company Messari, Ryan Selkis, tweeted that Dragonfly Capital’s Managing Partner, Haseeb Qureshi, had made an unexpected remark on “the $1.1 billion DCG-Genesis promissory note.”
On the latest episode of Unchained’s “The Chopping Block,” Haseeb Qureshi talked about the potential repercussions of Genesis going out of business. He claims that in the case of a Genesis liquidation, the 10-year note may have been structured as “callable.”
Ryan stated in his Twitter thread that if true, despite the fact that the promissory note was designed to be paid off over ten years, the crypto lending company may have considered it a “current asset” with a shorter lifespan. If Genesis had shown creditors a list of current assets, that would have made up a significant portion of it.
According to the tweet’s comment section:
It would also do two other things: + significantly reduce DCG’s ability to limit liability from a Genesis bankruptcy. a callable promissory note would basically be a “you break it, you buy it” situation + reduce Genesis’s urgency to file bankruptcy as they “have the assets.”
In Ryan’s opinion, this would allow the company’s creditors to decide whether or not they want to take them into bankruptcy through a notice of default. Since it would be much easier legally to drag DCG into bankruptcy over a present asset than a 10-year note, the leverage would shift to its creditors.
In this case, it would be highly probable that DCG pursues a recapitalization versus bankruptcy proceedings for the lender company. If the promissory note is indeed callable, then DCG’s odds of success in bankruptcy court would plummet. He also pointed out that “the lengthy silence could be a sign Genesis creditors are giving DCG time to figure it out.”
$1.1 billion DCG-Genesis Promissory Note
Investors have been concerned about the contagion spreading to the whole crypto sector since FTX’s abrupt. Lenders have ceased making loans, withdrawals are more challenging and uncontrolled, and the value of a number of tokens has plummeted.
The chief executive of Digital Currency Group (DCG), Barry Silbert, revealed in a letter that his business owes its subsidiary Genesis Global, the crypto lender (halted withdrawals and new loans), a loan of $575 million and a promissory note of $1.1 billion.
According to the letter’s statement, after DCG took over the lending company’s exposure from the Three Arrows Capital default, the $1.1 billion promissory note was issued.
Separately, the roughly $575 million that DCG borrowed from it was used to finance business ventures and purchase shares of DCG from outside stockholders, as per Mr. Silbert’s letter. He claimed that the loans were market-rate, arm’s-length agreements.
He also discussed Genesis’ lending operations and noted that the November 16th suspension of redemptions and new loan originations was due to a liquidity and term mismatch in the loan book.
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