December 10, 2023


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ETH Gobbles Up Larger Share of Genesis Loan Book as Trading Firms Feast on DeFi Summer

Decentralized finance (DeFi) reshaped Genesis Capital’s portfolios over the summer.

The firm, owned by CoinDesk parent company Digital Currency Group, saw the share of bitcoin in its loan portfolio drop as a percentage of total loans. The share of ether loans increased by five percentage points to 12.4{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} of the loan book quarter-over-quarter. (To be clear, loans across asset classes increased quarter-over-quarter but ETH loans now take up a larger slice of the pie.)

According to the lender’s report, this was mainly due to liquidity mining on DeFi protocols such as Compound, Aave and Uniswap. DeFi interest rate arbitrage drove Genesis clients to borrow ETH and stablecoins to “lever up liquidity mining strategies,” the company wrote. 

“We haven’t seen it to this degree,” CEO Michael Moro said of previous quarters’ ETH-to-BTC ratio. “As a percentage, BTC loans just didn’t grow fast enough to keep up with the other coins.”

The clients who are lending their assets out through Genesis are high-net-worth individuals, hedge funds, family offices and other asset managers, and they generate returns of 5{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} to 13{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} on those loans, Moro said.

Firms that borrow from Genesis are hedge funds, quantitative trading firms, crypto exchanges, other crypto lenders and crypto operating companies such as bitcoin ATM firms. 

Active loan originations at the firm increased by 50{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} to $2.1 billion in the third quarter, which was less than the 118{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} quarter-over-quarter increase that Genesis saw at the end of the second quarter because the second quarter increase had come after the March Black Thursday crash. The lender also saw a record $5.2 billion loan originations in the latest quarter, more than doubling the $2.2 billion for loan originations in the second quarter.

The firm is also soon launching an institutional lending API for exchanges and other firms that want to offer yield on crypto deposits to their retail customers. The first exchange to use the service will be DCG-owned Luno, and there are five or six other exchanges in the pipeline, Moro said.

Total trading volume in the third quarter was $4.5 billion, down from $5.25 billion in the second quarter but up by 285{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} from the third quarter last year. Around 90{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} of spot trading transactions and 30{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} of spot trading volumes happen through Genesis Prime’s smart-order routing engine, Moro said.

The firm is also aiming to offer agency trading or aggregated access to exchanges with passthrough execution, from about a dozen exchanges.

Genesis also saw $1 billion in derivatives trading total volume, which was up from $400 million in the second quarter. 

In the near future, Genesis also plans to offer capital introduction for family offices seeking crypto hedge funds that have the strategies, fee structure and asset exposure to fit their investing needs.