DCG countersues Genesis: $1.1 billion rescue loan significantly exceeds losses, bankrupt platform turns profit of hundreds of millions.

Cryptocurrency giant Digital Currency Group (DCG) has sued its bankrupt subsidiary Genesis, accusing it of profiting hundreds of millions of dollars through the soaring value of collateral (Bitcoin and GBTC rising), far exceeding the $1.1 billion bailout loan provided by DCG. Previously, Genesis sued DCG in May for fraudulently transferring $3.1 billion, with both parties’ lawsuits revealing the core disputes over the revaluation of collateral in the bankruptcy debt game of cryptocurrency.

DCG Accuses Genesis of Profiting After Bankruptcy

Digital Currency Group (DCG) has filed a lawsuit against its bankrupt encryption lending platform Genesis. The crypto giant claims that the $1.1 billion loan it provided to Genesis in 2022 far exceeds the latter’s actual losses, and that Genesis has long been in a profitable state after its bankruptcy. In the lawsuit documents submitted on July 25, DCG stated that due to the significant rise in the value of collateral recovered from Three Arrows Capital (TAC), its obligations under the promissory note have decreased to zero.

Collateral rise becomes the core of the controversy:

The lawsuit points out that this is because the collateral of Three Arrows Capital includes Bitcoin and shares of Grayscale Bitcoin Trust (GBTC), the value of which has significantly risen since 2022. “Genesis ultimately did not suffer losses due to the Three Arrows Capital default; on the contrary, Genesis has gained hundreds of millions of dollars (and Genesis is entitled to retain this profit),” the lawsuit states. It adds, “Due to the significant appreciation in the value of encryption since the bankruptcy filing date, this has resulted in the (Collateral) recovery value exceeding the dollar value of the creditors’ claims as of the filing date.”

Background of the Event: Rescue and Turn of Events Amidst Continuous Explosions:

Genesis is a lending platform operated by the crypto giant DCG, allowing users to earn returns by lending their held cryptocurrencies. In the market chain crisis triggered by the Terra collapse in 2022, Genesis provided billions of dollars in loans to distressed institutions such as Three Arrows Capital and FTX-affiliated Alameda Research. Following the collapse of FTX, Genesis announced the suspension of withdrawals in its lending department in November 2022, citing “unprecedented market turmoil,” and filed for bankruptcy in 2023. DCG has previously injected capital to help repay Genesis customers. A DCG spokesperson told Decrypt on Friday, “DCG took extraordinary measures in 2022 to voluntarily support Genesis, including issuing a promissory note to Genesis to help fill the potential balance sheet capital gap caused by the collapse of Three Arrows Capital. We have always fulfilled our contractual obligations under this promissory note, but we believe these obligations have now been fully performed. We are simply asking the court to confirm that this valid and binding obligation has been fully performed.”

Mutual Lawsuit Upgrade: $3.1 Billion Legal Battle:

This lawsuit by DCG is a counterattack against the lawsuit filed by Genesis in May this year. In the lawsuit in May, Genesis accused its parent company DCG and CEO Barry Silbert of fraudulent asset transfers during the collapse of Genesis in 2022, seeking $3.1 billion in damages.

Conclusion

This mutual lawsuit between the parent and subsidiary companies reveals a unique contradiction in cryptocurrency bankruptcy liquidation—the drastic fluctuation in the value of Collateral may completely overturn debt relationships. The bull market rebound of Bitcoin and GBTC has transformed Genesis from “insolvent” to “over-collateralized,” and DCG is attempting to use this to absolve remaining obligations. The outcome of the case will have a profound impact on the recognition of bankruptcy claims and the valuation rules of Collateral in cryptocurrency institutions.