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Gemini Creditor Committee Unveils Plan to Address Cash Flow Problems

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According to Gemini co-founder Cameron Winklevoss in a tweet, a creditor committee that includes Gemini has offered Genesis and Digital Currency Group a plan to “provide a path for the recovery of assets.”

At the height of the bull market in February 2021, Gemini teamed up with Genesis to launch Gemini Earn, which provided customers with up to 7.4% interest on their cryptocurrency deposits. Given the market turbulence brought on by FTX in mid-November, Genesis stopped allowing withdrawals, locking Gemini Earn funds in the process.

Amanda Cowie, vice president of communications and marketing at DCG, at the time said,

“This decision was made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion……This decision impacts the lending business at Genesis and does not affect Genesis’s trading or custody businesses. Importantly, this decision has no impact on the business operations of DCG and our other wholly owned subsidiaries.”

Genesis Reportedly Owes Gemini $900M

According to a person familiar with the situation, customers who have money locked up on the trading and lending site Genesis and who have sought legal counsel in the matter are currently responsible for about $1.8 billion in loans. And it appears that number will keep rising.

According to a recent Financial Times investigation, a group of consumers utilizing Genesis-affiliated cryptocurrency exchange Gemini’s Earn program were due $900 million when the loan division of Genesis stopped allowing customer withdrawals on November 16.

Proskauer Rose is representing the second set of unrelated Genesis creditors, whose loans total $900 million as well, a second source informed the media.

The Proskauer group brings the total to $1.8 billion, and a third ad hoc group, which is being represented by Kirkland & Ellis, the legal team for insolvent cryptocurrency companies Celsius Network and Voyager Digital, is expected to add more, the second source said. It is unknown how much money this third group owes in loans. The second person indicated that the law firm Latham & Watkins is also representing the Gemini customers group.

In a letter to investors on Nov. 23, Genesis said,

“It had begun discussions with potential investors and our largest creditors and borrowers, including Gemini and DCG [Digital Currency Group], to agree on a solution that shores up our lending business’ overall liquidity and addresses clients’ needs.”

Binance Dives Into DeFi With Launch Of Automated Market Maker Pool

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Touted as the world’s largest cryptocurrency exchange, Binance made its way to the top with consecutive developments for the exchange as well as the ecosystem. The last two years have been eventful for the exchange following an array of partnerships across the globe. While global expansion has been one of Binance’s major missions, it hasn’t lost focus on the upgrades pertaining to the platform. Recently, the Malta-based exchange announced the launch of a new trading platform, Binance Liquid Swap.

Binance Steers Towards DeFi

Off late, Decentralized Finance [DeFi] has been the talk of the crypto town. While several platforms have been exploring the prospects of the DeFi space, Binance seems to have jumped on to the bandwagon. In a recent blog post, the exchange revealed that it had launched an automated market maker [AMM] pool, Binance Liquid Swap. This would permit users who provide liquidity to earn both income as well as interest via trading fees. However, unlike DeFi, Binance’s latest venture, is reportedly centralized.

The Malta-based crypto exchange claims to be the first to roll out a centralized exchange with AMM. The post further read,

“When you place your crypto funds into the liquidity pools on Binance Liquid Swap, you get to harness the power of an AMM pricing module. This can give you stable prices and lower fees for transactions both small and large, which are done via instant swaps.”

Currently, the platform supports just three coins, stablecoin Tether [USDT], Binance USD [BUSD] as well as Dai [DAI].  The liquid trading pairs available were USDT/BUSD. BUSD/DAI and USDT/DAI.

Furthermore, Binance affirmed that the prices and the transaction fees pertaining to the Binance Liquid Swap was entirely dependent on the assets in the liquidity pool. When a user adds, removes, or swaps funds present in the pool, the fees as well as the price changes. The exchange added,

“You’re entitled to your interest plus a cut of the transaction fees when you pool your tokens.”

Since the latest platform is still in its promotional period till 4 October 2020, the trading fee will be as low as 0.04 % However, it would soon return to 0.1% after the aforementioned date.

Bitcoin’s Liquidity concerns highlighted with the instability of Bid-Ask spread

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The digital asset industry put its best foot forward at the start of 2020.After witnessing a collective bullish rally, which saw Bitcoin surge up to $10,145 by February 2nd week.  Since then, however, an unexpected slump has sparked a series of misfortunes for the biggest digital asset, as on 12 March BTC succumbed to $3800.

In order to understand market conditions, analysis of the bid-ask spread is a common practice. The Bid-Ask spread is the difference between an amount the buyer is willing to pay and the amount a seller is ready to accept. The measurement scale is taken in terms of basis points or bps, where 1 bps=0.01%.

Coinmetrics recent report conducted a study to analyze the Bid-Ask spread in the current market.

Bid-Ask spread indicated absence of Liquidity

According to common consensus, a B/O spread should usually be under 20 bps under normal trading parameters. On observing the chart below, a normal spread in the market can be understood.

Image 1

However, large price movements usually create a ripple effect in the Bid-Ask spread, as the market instantly reacts to market volatility.

During September 2019, Bitcoin‘s price dropped from $9500 to $800 within a 24-hour window and the Bid-Ask spread jumped drastically for a brief period in the charts.

Image 2

As observed in the chart above, the B/O spread spike above 50 bps but as the price attained stability, the spread was under 20 bps levels again in the network.

In light of the above scenario, the situation was significantly different at the present time.

The slump on 12th-13th March inevitably affected Bid-Ask spread as usual but since then, the spread levels have failed to return to normalcy.

Image 3

B/O spread data continued to indicate levels above 20 bps until 23rd March, which is exactly 10 days after the crash. Such volatility in the B/O spread implied the market continued to lose its liquidity.

The community speculated that another reason for the reduction of liquidity is the fact that users expected the turbulence to continue, and they were waiting to improve their spreads in the market.

Lack of Open-Interest in Derivatives Market

An argument can be made that liquidity in the exchanges was dropping due to the absence of exiting market investors. As mentioned before, a significant part of investors conducted a sell-off on the 12th and since then, traders have idealized a cautious approach.

The Open-Interest on major exchanges hasn’t recovered as well, hence the Bid-Ask spread continues to indicate a loss of liquidity.