Genesis Files for Bankruptcy... Owes $3.5 Billion+ 🚨

+ Blockspace Hedging Market, HashKey $500M crypto fund

January 20, 2023

GM folks 👋🏻 - Happy Friday. Welcome back to Chain Catalyst, the best newsletter for web3 builders and investors. We have a lot for you today.

To the new subscribers, welcome! We saw a massive influx in the past few days and we're very happy to welcome you all 🤗

Here's a quick download. Fundraising activity is picking back up (details below). FTX considers restarting its exchange, Genesis files for bankruptcy (finally), and 3AC's Su Zhu is seemingly happy about it. Let's dive in 👇

In Today's Email:

What Matters: Genesis files for bankruptcy, owes $3.5B+ 📜
Founders Highlight: Ricardo Grobel & Leo Zhang of Alkimiya 📊
Deal Flows: HashKey Group $500M Crypto Fund III 📈

WHAT MATTERS

Genesis Files for Bankruptcy, Owes $3.5B+

Meme credits: @HsakaTrades

State of play: The long saga of rumored Genesis insolvency has finally come to an end. Somewhat at least. One of the largest crypto lenders has finally filed for bankruptcy protection, owing $3.5B+ just to the top 50 creditors.

Genesis suffered a financial hit after the collapses of crypto hedge fund 3 Arrows Capital and FTX exchange. It halted withdrawal on November 16, 2022. Genesis has since tried to raise cash but failed.
Creditors including the Gemini exchange led by the Winklevoss twins are unsurprisingly angry and have taken the spat public. That said, the SEC has sued both Gemini and Genesis for breaking security rules.

6/ Unless Barry and DCG come to their senses and make a fair offer to creditors, we will be filing a lawsuit against Barry and DCG imminently.
— Cameron Winklevoss (@cameron)
5:13 AM • Jan 20, 2023

Why it matters: Genesis owes $3.5B+ just to its top 50 creditors; only has approximately $500M in assets, with its largest creditor alone having a claim of $765M. For now, it seems that the market is underestimating the impact the Genesis bankruptcy will have on the open market. The list of creditors and the amount owed shows just how much contagion we still need to go through before the dust settles.

Recognizable names among Genesis creditors:
• Gemini: $765m
• Mirana (Bybit?): $151m
• Moonalpha (Babel): $150m
• Coincident Cap (Mex/Finex Leaderboarders): $110m
• Decentraland: $55m
• VanEck: $53m
• Abra: $30m
• Cumberland: $18m
• Stellar Foundation: $13m
— Hsaka (@HsakaTrades)
5:20 AM • Jan 20, 2023

How complex would this bankruptcy proceeding be? -- well, let's just say that it adds complexity to the ongoing daisy chain of crypto leverage.

@alphaketchum

For builders: Get money in the bank (or on-chain multisig) ASAP. Wrap up those fundraising rounds if you're in the middle of one. You never know when investors will get clawed back or if they're affected in one way or another by the daisy chain of leverage shown above.

For investors: Cautiously optimistic. Crypto markets went from $800 billion to $1 trillion in the past 10 days and many think that the macro market is at a pivot. However, you might also be picking a falling knife during these times.

I would rather buy into a market already up 100%+ off the lows after the Fed communicates a pivot, than buy into a market up 100% off the lows in which the pivot doesn’t occur, and then suffer a 50%+ correction due to poor macro fundamentals. - Hayes

BUILDER-INVESTOR HIGHLIGHT

Ricardo Grobel & Leo Zhang, Founders of Alkimiya

Ricardo Grobel and Leo Zhang are the founders of Alkimiya. They're building a decentralized capital market for blockspace. The product will provide hedging solutions for blockspace producers including miners and staking validators ⛏️

Previous backgrounds:

Ricardo Grobel has an extensive engineering background. He was formerly a Software Engineer at Transfero Swiss AG, a CTO for Harlio Bots, and a Senior Software Engineer for Itaú Unibanco bank 👨‍🔧
Leo Zhang was formerly at Morgan Stanley doing equity derivatives before leading research at Iterative Capital Management 👨‍💼

The big idea: Alkimiya is providing solutions to blockspace producers because they're akin to commodity producers in TradFi markets. These entities have a set of costs they bear to produce goods but need to better manage their risk given fluctuating yields and prices.

"Traditional commodity companies like oil or gold companies use futures and options to hedge against their production risk," said Zhang. "The problem with blockspace producers is that they can hedge against the price of bitcoin or ETH but they don't actually know how much bitcoin or ETH to hedge."

To solve this problem, Alkimiya promises yields that are directly linked to blockspace production, enabling blockchain producers to lock in an upfront fixed return for their future production.

For a simpler analogy, think about how BMW requires steel to manufacture their cars, but they don't want to be exposed to the price fluctuations of steel. BMW uses the futures market to hedge its risks.

Perhaps with Alkimiya's solution, we'll see fewer miners going into bankruptcy when crypto prices are down ⛏️

DEAL FLOWS

HashKey Capital $500M Crypto Fund III

Funding rounds are picking back up. Perhaps these projects were waiting for the New Year to announce their press releases, so take it with a grain of salt. We saw ~$170M in deals announced over the past week, not including HashKey crypto fund III highlighted below.

HashKey Capital $500M Crypto Fund III: Hong Kong-based investment firm HashKey Capital successfully raised its crypto fund III with $500M in committed capital. A remarkable achievement in this bear market. Investors include sovereign-wealth funds, corporates, and family offices.

The new fund will focus on emerging markets 📈 - HashKey Capital was initially launched in 2018 and is currently managing over $1 billion in AUM. Its portfolio companies include notable names such as Cosmos, Aztec, and Animoca Brands.
HashKey has a presence in the United States and Japan but operates out of Singapore and Hong Kong. It employs 91 employees according to LinkedIn.

Deal flows in the past week:

WeaveDB, $900K Pre-Seed Round
Elixir, $2.1M Seed Round
Metahood, $3M Seed Round
Trusta Labs, $3M Seed Round
Metahood, $3M Seed Round
Blue, $3.2M Seed Round
Diva, $3.5M Seed Round
Sleepagotchi, $3.5M Seed Round
Cypher, $4.3M Seed Round
Ulvetanna, $15M Seed Round
SyKy, $9.5M Series A
Obol Labs, $12.5M Series A
Arch, $2.75M Unknown Round
Neopets Meta, $4M Unknown Round
Intella X, $12M Unknown Round
Parfin, $15M Unknown Round
=nil; Foundation, $22M Unknown Round
Asian Blockchain Gaming Alliances, $45M Ecosystem Fund
Mask, $5M Strategic Round
Forkast Labs, Undisclosed $ Merger
Tactic, Undisclosed $ Acquisition

QUICK BITES

FTX considers restarting exchange.
Genesis files for bankruptcy, owes $3.5B to top 50 creditors.
Winklevoss threatens legal action against DCG CEO.
US Authorities announce international crypto enforcement action.
US charges Bitzlato for $700M in money laundering.
CoinDesk explores partial or full sale.
Nexo pays $45M in fines to SEC.
Thiel's Funds sold Bitcoin.
1inch Network enters the hardware wallet business.
Huobi confirms that Justin Sun is the exchange's leader.

MEME & NOTEWORTHY READS

Arthur Hayes' blog on macro & crypto markets.
Electric Capital's annual report on developer activity.
Adam Cochran's annual thread on his crypto shopping list.

DOJ
— Hsaka (@HsakaTrades)
5:23 PM • Jan 18, 2023

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.