Ending TradeBlock DCG’s struggle for survival

TradeBlock DCG's survival secured.

According to Bloomberg, Digital Currency Group (DCG) will shut down its institutional trading platform TradeBlock on May 31, which provides trading execution, pricing, and bulk brokerage services to institutional investors. A DCG spokesperson said, “Due to the macroeconomic environment and the long-term crypto winter, as well as the challenging US digital asset regulatory environment, we have decided to close our institutional trading platform business.”

DCG, as an industry leader with many investment layouts and two crypto star companies, Grayscale and Genesis, has been dominant. However, with Genesis’s bankruptcy and the failure to resolve the $630 million debt crisis, it has fallen into a predicament. Will this “Titanic” of the crypto industry eventually sink?

01 Genesis applies for bankruptcy, triggering rumors of DCG bankruptcy

At the beginning of the year, DCG was rumored to be bankrupt due to Gemini’s debt collection, and shortly after, Genesis announced its application 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 loans. In the FTX thunder incident, Genesis had a hole of 175 million US dollars, 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 led the exchange to suspend users from withdrawing from Gemini Earn in mid-November last year. In addition, Genesis has another group of creditors, and the total debt amount has reached 1.8 billion U.S. dollars.

Facing the anger of customers who cannot withdraw cash and the successive lawsuits, Gemini is under tremendous pressure. After pursuing for six weeks without success, Gemini had to issue a final ultimatum to DCG, and then there was news of “Gemini’s open letter to DCG: demanding repayment of 900 million US dollars owed” In the open letter, Winklevoss (Gemini co-founder) stated that DCG’s internal fund management was chaotic, and it borrowed about 1.675 billion U.S. dollars from its subsidiary Genesis for other group businesses. This fund was originally owed to Gemini Earn users and other creditors of Genesis. Winklevoss demands that Silbert (DCG founder) publicly commit to solving this problem together by January 8, 2023.

It was widely believed in the industry that if DCG failed to come up with a satisfactory solution by January 8, Gemini might force Genesis into bankruptcy liquidation, which would obviously be a heavy blow to DCG. Once Genesis enters bankruptcy proceedings, it will trigger the liquidation of DCG’s assets (based on redeemable loans), and DCG will be at risk of bankruptcy, and its subsidiary, Grayscale Trust, will also face significant risks.

As expected, Genesis was unable to repay its debts and applied for bankruptcy protection. As the parent company of Genesis, DCG was also deeply involved in the bankruptcy storm.

02 6.3 billion US dollars are still outstanding, and DCG is in prison

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

To this end, Genesis submitted a motion to the bankruptcy court on May 19, seeking to extend the exclusivity period for its proposal. This will be a plan that Gemini agrees with. Meanwhile, Gemini is preparing to file a claim demanding that Genesis return more than $1.1 billion in digital assets to its 232,000 Earn users.

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

After Genesis and DCG reached a “principle agreement,” a complete settlement agreement was submitted to the court in February of this year, and the initial settlement agreement was aimed at providing 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 22, Gemini plans to file a new claim to recover more than $1.1 billion in digital assets. As of January 19, Genesis did not return these assets to approximately 232,000 active loan holders of Gemini Earn.

DCG failed to meet its obligation of $630 million in debt, which raised concerns as some had predicted that DCG might default on the loan.

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

03 Shut down TradeBlock to survive with a broken arm?

As mid-year arrives, the crypto winter continues, and DCG, which has experienced the bankruptcy of Genesis and the failure to repay $630 million in debt, has not had a chance to catch its breath.

According to a recent Bloomberg report, DCG will cease operating TradeBlock on May 31, 2023 due to 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 stated its intention to focus on its core business, which will allow the company to integrate its business and streamline its products to better serve its customers.

Founded in 2013, TradeBlock is a digital currency trading platform for institutional investors that allows users to execute trades, access market data and analytics, and manage their digital asset portfolios. TradeBlock also offers a range of services, including crypto industry currency indices, order management systems, and a set of APIs for developers.

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

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

DCG’s financial situation is currently 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 2022 consolidated revenue was $719 million. As for the company’s assets, the report shows that as of December 2022, total assets were $5.3 billion. Of these assets, only $262 million is cash and cash equivalents.

There are multiple reasons that have led to the current predicament faced by DCG. On the one hand, due to the downturn in the cryptocurrency market, DCG’s extensive investments have not yielded expected returns. On the other hand, DCG misjudged the situation and continued to make large investments in GBTC despite the continuous decline in GBTC premium, resulting in continued losses. The most criticized reason is the debt relationship between DCG and Genesis, its largest cryptocurrency lending platform, which has caused huge losses and made DCG cornered.

Closing TradeBlock and focusing resources on the group’s core business is a last resort.

04 Conclusion

In the cryptocurrency world, DCG is an existence that cannot be ignored.

It once owned three well-known subsidiaries, Grayscale, CoinDesk, and Genesis, and has low-keyly invested in more than 100 blockchain companies in more than 30 countries around the world, and has long been active in the forefront of many blockchain investment institutions. It is 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 sufficient funds, but also help DCG expand its investment map globally with their resource advantages.

With the outbreak of the cryptocurrency liquidity crisis and market downturn, the once-blind expansion and investment have ushered in bitter results.

We are not afraid to imagine the worst result for the future of DCG. DCG itself seems to be at a critical moment of life and death. It is unknown whether there will be any further action after closing TradeBlock, and whether the $630 million debt will eventually be repaid.

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