Speaker 1: This is Bloomberg Crypto, a daily Bloomberg I heart podcast,
Speaker 1: and I'm Stacy Marie Ishmael, Managing editor of Crypto for
Speaker 1: Bloomberg News. It's Wednesday, no Ambithatius. We're just gonna keep
Speaker 1: saying this news moves fast in crypto to help us
Speaker 1: stay on top of it. Today, we're going to talk
Speaker 1: about some of the pivotal but maybe even slightly less
Speaker 1: well known to you players in crypto, many of whose
Speaker 1: names all begin with G y G. I have no idea,
Speaker 1: but it is a strong letter joining me today to
Speaker 1: discuss Genesis, Galaxy and even Gemini. Is Bloomberg Report um.
Speaker 1: I think the centralized players recognize the need to provide
Speaker 1: more transparency, just so that they can convince people that
Speaker 1: they are a legitimate business and they are not misusing
Speaker 1: your fund a. Welcome back to the podcast. Have you
Speaker 1: been getting a lot of sleep? Ah, that's a great question.
Speaker 1: Not as much as I hope to. This past few
Speaker 1: weeks has been crazy. Every since the collapse of FTX happened,
Speaker 1: which nobody really saw it coming. Before we jump into
Speaker 1: some of the people who have been affected or maybe
Speaker 1: affected by the collapse of FTX, reminder our listeners who
Speaker 1: you are and what you cover. I am Us Young,
Speaker 1: and I'm a crypto market structure reporter at Boomberg in
Speaker 1: New York, and I cover crypto exchanges, including by nights,
Speaker 1: f t X, and coin Bass, so all of the
Speaker 1: people that have a lot of stuff going on right now.
Speaker 1: But in addition to covering the exchanges, you have also,
Speaker 1: along with some of our colleagues, been reporting on a
Speaker 1: lot of different kinds of crypto companies that have in
Speaker 1: the past couple of weeks been you know, making it
Speaker 1: clear that they're affected and big and small ways by
Speaker 1: the fallout from FTX. One of the things that I've
Speaker 1: noticed is there are a lot of companies in crypto
Speaker 1: that have like really similar names to each other. And
Speaker 1: there's some that we cover that all begin with G.
Speaker 1: One of them is Genesis and they have really in
Speaker 1: the past couple of weeks come to people's attention alongside Gemini,
Speaker 1: another G, and you know a few other folks in
Speaker 1: that area. Can you just share with our listeners what
Speaker 1: are some of the things that have been happening in
Speaker 1: the reporting that you've been doing on them the crypto space.
Speaker 1: There are two companies starting with the letter G that
Speaker 1: are highly critical in terms of the role that they
Speaker 1: play in the market space. One is Genesis UM and
Speaker 1: now there is Galaxy Digital, and both of them are
Speaker 1: institutional facing only, which means that they're not really household
Speaker 1: name for people outside of the cryptal industry, but they're
Speaker 1: essentially providing financial services similar to what Wall Street is
Speaker 1: in finance in the crypto space. And recently the collapse
Speaker 1: of f t X really shed a light on the
Speaker 1: business model of some of these companies, especially with Genesis,
Speaker 1: because they're also caught in the contagion effect from ft X.
Speaker 1: Now how and why are they caught in the contagions?
Speaker 1: So you know, you mentioned they provide financial services, like
Speaker 1: what are some of the wieze that companies like Genesis
Speaker 1: and Galaxy are exposed to the collapse of FTX. So
Speaker 1: Genesis is one of the earliert and biggest lenders in
Speaker 1: the cryptal industry and what they do is that they
Speaker 1: provide lending to cryptal players in the space. And as
Speaker 1: we know that lenders have been hit hard in the
Speaker 1: current collapse with the of prices, there's a question about
Speaker 1: the level of clasterization that's widely accepted in the industry.
Speaker 1: And even though Genesis is an institutional company, because they
Speaker 1: provide such a central role in providing lending to the space,
Speaker 1: some of the retail facing products, such as Gemini Earned
Speaker 1: product is in essence supported by Genesis. And this means
Speaker 1: that for retail users who use the Gemini Cryptal exchange
Speaker 1: when they opt into this yield product, which means they
Speaker 1: can deposit their cryptal and get say a percent yield
Speaker 1: from the product, the back end of it is supported
Speaker 1: by Genesis because what Gemini does is essentially pairing retail
Speaker 1: users who are wanting to get yield from their deposits
Speaker 1: with lenders like Genesis who's paying out the yield. Got it.
Speaker 1: So here we have another g Gemini. So we've got Gemini,
Speaker 1: Genesis Galaxy. Now Genesis, as you mentioned, is this pivotal
Speaker 1: lender in the crypto space, and one of the challenges
Speaker 1: that they've had is this is not their first crisis.
Speaker 1: They lent money to Three Arrows Capital now collapsed, another
Speaker 1: bankrupt touch fund. They lent two point four billion dollars
Speaker 1: to Three Arrows Capital. You mentioned collateralization earlier, but Three
Speaker 1: Arrows had put up about half as much of that
Speaker 1: in collateral, so they had an overall exposure of one
Speaker 1: point two billion. What happened to that exposure and how
Speaker 1: does that kind of relate to genesis parent company DCG.
Speaker 1: So Genesis was the biggest creditor to Three Arrows with
Speaker 1: Three Arrows blew up, so this is really a one
Speaker 1: to punch for Genesis. They were just recovering from Three
Speaker 1: Arrows loss. After that they had this new generation of leadership.
Speaker 1: Their CEO, Michael Mara departed and they had new top
Speaker 1: seats with executives and they laid off people as well,
Speaker 1: so they were really try in to restructure their business
Speaker 1: and recover from the head and then just a few
Speaker 1: months into it, now we have the FTX collapse and
Speaker 1: this time it seems that they're being hit pretty hard
Speaker 1: given that it just came on the heel of the
Speaker 1: earlier damage. And the parent company d c G. Digital
Speaker 1: Currency Group is the cryptal conglomerate founded by Barry Silbert,
Speaker 1: and they are the one who again stepped in to
Speaker 1: help our with Genesis, this time with their ft X exposure.
Speaker 1: They injected capital over a hundred million into Genesis. When
Speaker 1: Genesis realized that it has some of its money stuck
Speaker 1: on the ft x platform, but it seems like this
Speaker 1: is not enough to fully sustain the business. And as
Speaker 1: we have reported, Genesis has been in talks for emergency
Speaker 1: fundraising to raise over one billion dollar during the past
Speaker 1: few days, and they have told investors that if they
Speaker 1: can't get that money, they're at risk of entering bankruptcy.
Speaker 1: What are some of the expectations that people have for
Speaker 1: crypto right now? It's like, clearly there's no evidence of
Speaker 1: bitcoin is going back to sixty anytime soon. But at
Speaker 1: the same time, you don't really see a lot of
Speaker 1: people saying, well, everything is going to zero. We seem
Speaker 1: to be in an in between place, like what is
Speaker 1: the vibe you're getting from your reporting? I think the
Speaker 1: series of blobs and failures at major companies into crypto space,
Speaker 1: it's going to lead to major market structure changes in crypto.
Speaker 1: And then one big one is really the lending business
Speaker 1: in crypto. We are going to see fewer lenders who
Speaker 1: accept underclasterized or even uncollasterized loans. Some of them just
Speaker 1: had to shut down because they're suffering from these losses.
Speaker 1: And on the other hand, DeFi is becoming a bright
Speaker 1: spot because with DEFA you have the transparency and in
Speaker 1: theory you can track data on chain, and that's one
Speaker 1: part that people in the industry are expecting to grow
Speaker 1: and to become more dominant going forward in the crypto space.
Speaker 1: But then at the same time, we also have regulatory
Speaker 1: uncertainty when it comes to either centralized players such as
Speaker 1: lenders or exchanges, or decentralized players, which we call defy.
Speaker 1: So I think there's just market forces that are reshaping
Speaker 1: the market structure, especially when it comes to the type
Speaker 1: of lenders that are surviving the industry. But then there
Speaker 1: are also regulatory forces that will come into play as well.
Speaker 1: In other words, difficult to tell because you know, you're
Speaker 1: describing a series of forces that are both working against
Speaker 1: and for each other. For instance, we're really really hearing
Speaker 1: from a lot of folks that we're talking to this
Speaker 1: idea of it's not that crypto failed, it's that centralized
Speaker 1: crypto players failed, right Like that's that's a very strong
Speaker 1: drumbeat that's coming from one particular element of the market.
Speaker 1: And then over in the side of defy, you know,
Speaker 1: we've had some pretty interesting types of blow ups and
Speaker 1: defy at the same time, right you, whether it's billions
Speaker 1: of dollars worth of hacks, whether it's questions around the
Speaker 1: legality of certain types of dows, whether it's even though
Speaker 1: you do have this transparency, it's still appears to be
Speaker 1: very possible for the dynamics of these things to not
Speaker 1: exactly be what you're expecting, so you still you lose
Speaker 1: your money. There's a risk profile question of as interest
Speaker 1: rates continue to rise, do you need to be taking
Speaker 1: fairly substantial risks to get that eight percent yield? Can
Speaker 1: you just like put money in a bank account instead.
Speaker 1: So definitely an interesting time. But just to go back
Speaker 1: to this idea of no need for centralized lenders, what
Speaker 1: the lenders themselves will say and what other folks who
Speaker 1: work in the more centralized part of the market will say,
Speaker 1: is they bring kind of clarity and ease of use
Speaker 1: and a better user experience. Then you can necessarily get
Speaker 1: from DeFi right, if you are trying to have somebody
Speaker 1: who will pick up the phone when you have a question,
Speaker 1: having a centralized lender seems to be the way forward.
Speaker 1: Are you seeing any evidence that instead of it being
Speaker 1: these extremes of completely anonymous, decentralized protocol where your help
Speaker 1: desk is like a discord channel and major centralized player
Speaker 1: with like expensive offices in Manhattan. Is there something emerging
Speaker 1: in the middle at all. I think there's this effort
Speaker 1: among centralized platforms such as bine eye that has been
Speaker 1: pushing to disclose more of the proof of user funds.
Speaker 1: For example, there are some of them are disclosing the
Speaker 1: blockchain addresses of their customer funds. So I think the
Speaker 1: centralized players recognize the need to provide more transparency just
Speaker 1: so that they can come the people that they are
Speaker 1: a legitimate business and they are not misusing your fund,
Speaker 1: which people in the industry can no longer take it
Speaker 1: for granted. I think one helpful way that I've told
Speaker 1: to think of these centralized players, such as centralized lenders,
Speaker 1: it's really that they are just lenders period. Even though
Speaker 1: product that they're dealing with is cryptal, the back and
Speaker 1: and operation of their business is nothing related to blockchain.
Speaker 1: Oftentimes it's run on Excel sheet. It is the communications
Speaker 1: are down through these social media channels. Therefore, they are
Speaker 1: really not following the originalsource of cryptal, which is for
Speaker 1: everyone to be able to track through blockchain. The transfer
Speaker 1: of value and then for people to be able to
Speaker 1: verify things publicly and remove the need to trust opaque player.
Speaker 1: So I think in a way, given the series of
Speaker 1: failures in the space, the centralized players are seen consequences
Speaker 1: because they're not falling strictly the original intent of blockchain,
Speaker 1: which is to be open and transparent. Coming up, we'll
Speaker 1: be right back with more from Bloomberg Reports to ung.
Speaker 1: If I think back to two thousand and eights, where
Speaker 1: you had a very similar set of concerns around can
Speaker 1: you trust that somebody knows what their positions are? How
Speaker 1: are they marking these assets? Are their market prices they
Speaker 1: can get for these assets. One of the concerns that
Speaker 1: centralized players had about being more transparent was this idea
Speaker 1: that people could like take advantage of knowing what your
Speaker 1: positions are, they could potentially front run you or you know,
Speaker 1: squeeze you, depending on like where you were playing or
Speaker 1: even And I remember this consider learned about when the
Speaker 1: bank's were getting stress tested that if your stress tests
Speaker 1: came back and show that you were highly stressed, then
Speaker 1: that might you know, precipitate a run on that particular bank.
Speaker 1: Are you seeing any similar criticisms of these attempts to
Speaker 1: transparency in crypto that we saw on Wall streets. You
Speaker 1: know a while ago. I think there's this recognition within
Speaker 1: the crypto space that financial regulation makes sense. There's a
Speaker 1: reason that they're putting there by regulators. We had an
Speaker 1: editor who joked that financial regulators have never been so
Speaker 1: flattered after seeing that the series of crypto blobs, because
Speaker 1: it shows what happens in the market when you do
Speaker 1: not have these protections that that people have learned from
Speaker 1: their past mistakes. Yeah. So I think it is an interesting,
Speaker 1: like so searching period for for crypto native folks too.
Speaker 1: On one hand, the whole industry started when they're trying
Speaker 1: to run away from some of the established institutions and regulations,
Speaker 1: but then on the other hand, they're really suffering from
Speaker 1: the consequences from them. Yeah, what an interesting time to
Speaker 1: be a regulator. You know, you're sort of writing your
Speaker 1: performance review being like, look at all the things that
Speaker 1: we prevented from happening over here. Just as a kind
Speaker 1: of a closing question, I have covered financial markets for
Speaker 1: a long time, and I have used to kind of
Speaker 1: a breakneck pace of breaking news, but even by historical standards.
Speaker 1: The speed at which things in crypto happen is genuinely
Speaker 1: astonishing when you're talking to the sources that you have
Speaker 1: that aren't sleeping much either, like what is their impression
Speaker 1: of why things are moving so quickly? Is there something
Speaker 1: unique to this asset class? Is it because it's such
Speaker 1: a small industry and everybody knows and it is exposed
Speaker 1: to each other, Like do they have a take on
Speaker 1: why on Tuesday everything's fine. On Thursday everybody's bankrupt. I
Speaker 1: would say that social media plays a huge part in
Speaker 1: this because everything is being played out in real time
Speaker 1: on social media. When ft X got into trouble, cz
Speaker 1: and Sandbank my Free were announcing their deals real time
Speaker 1: on Twitter, and that's how people find out the issue
Speaker 1: of liquidity crunch at FTX. So I think in the
Speaker 1: past few weeks, every day there's Twitter space being held
Speaker 1: that are hours long, and there's just citizen journalism effort
Speaker 1: on Twitter as well. So I think the pace is
Speaker 1: very fast because in a way that everyone is crowdsourcing
Speaker 1: information and sharing information at the same time on social media.
Speaker 1: But that also comes with the challenge of verifying these information,
Speaker 1: at least for us reporters because there are a lot
Speaker 1: of rumors being put out as well. Interesting that none
Speaker 1: of this is happening on Mastodon yet, but we'll see,
Speaker 1: we'll see how that goes. Thank you very much, pleasure
Speaker 1: to have you in the show. Thanks for having me.
Speaker 1: You can find more of you It is reporting on
Speaker 1: the Bloomberg Terminal and on Bloomberg dot com, and of
Speaker 1: course you can check out our twice weekly news a
Speaker 1: lot of Bloomberg Crypto. This is Bloomberg Crypto, a daily
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Speaker 1: at Bloomberg dot net. The supervising producer of Bloomberg Crypto
Speaker 1: is Vicky very Galina. Our senior producer is Janet Babin.
Speaker 1: Our producers are Mohammed Faruk and Sharon Barrero. Our associate
Speaker 1: producers are Ty Butler and Moses on Them. Desta wonder
Speaker 1: At is our engineer. Original music by Leo Sidrin. I'm
Speaker 1: Stacy Marie Schmal. We'll be back tomorrow. Two