The public disputes and accusations between the crypto exchange Gemini and the group Digital Currency Group (DCG) are well known. With the official insolvency of the Genesis subsidiary last week, negotiations with its creditors entered the next round.
Also included: Bitvavo, the Dutch crypto exchange that parked €280 million with the bankrupt lending service. For weeks, the exchange has been actively negotiating with DCG, like them previously reported in numerous updates. In it, however, the exchange repeatedly claims that its platform is not affected by DCG’s “liquidity problem”. There is confusion about the company’s position.
Bitvavo: “Platform unaffected”
In total, Bitvavo holds around EUR 1.6 billion in customer funds. According to Bitvavo Custody BV, the offshoot for crypto custody, part of this transferred to DCG and its subsidiaries. It was used to offer customers “off-chain staking services,” it says.
The 280 million euros ended up at Genesis and are stuck as a result of the payment freeze. However, Bitvavo differs from platforms like Gemini in that the payment to Genesis is pre-financed according to its own statements. So, the company guarantees the funds deposited for the staking service. In this way, customers of the exchange can make withdrawals “at any time” despite the stuck funds. The staking on the exchange therefore continues, although the interest rates for it have been corrected downwards.
But that also means that the stock exchange itself is responsible for the missing 280 million euros in customer funds. Doubts about Bitvavo’s financial situation promptly arose. That’s what it reported Dutch magazine FD that the founders of the exchange would have to step in with their own capital of 110 million euros if no repayment could be agreed with Genesis. In addition, according to their own statements, they have another credit line of 70 million euros available. FD closed a possible hole of 180 million euros in the company’s balance sheet.
Ambiguous financial position
Bitvavo responded immediately with a statement on its own financial situation. In the event of a total failure of Genesis, you have plenty of capital to cover the 280 million euros, it says. A screenshot with a vague statement of the finances acted as proof.
Accordingly, one would come to 293 million euros. Equity is formed by the profits after the dividend payment from 2021 and 2022, together almost 100 million euros. However, you can also see that a large part of the amount comes from the financial injection of the founders (shareholder contributions). It also remains unclear to what extent credit can be drawn if Genesis is actually insolvent.
In the meantime, the exchange continues to assure its own solvency in its blog. The company has accumulated “extensive reserves”. According to their own statements, these can be seen in the annual financial statements and confirmed by their own accountant, Grant Thornton. At the request of BTC-ECHO, Bitvavo provided annual financial statements from 2021, which are consistent with the above statements from the exchange for the period. However, the final balance sheet for 2022 is still pending.
Negotiations with Genesis: Clarification in sight?
By taking over the 280 million euro debt, Bitvavo tried to contain any panic among its own customers and continues to make efforts to insure its own financial health. According to reports from customers, operations are therefore running as usual for the time being. However, since the exchange guarantees customer funds with its own equity, a lot seems to depend on a quick agreement with Genesis.
An offer from DCG to pay 70 percent of the debt in a “reasonable time for Bitvavo” is already on the table. And would certainly be of great help. As FD reports, from Bitvavo’s founder’s point of view it is “probable that DCG will also pay the remaining amount”. The decision was made after “insight into DCG’s financial situation and on the basis of ongoing negotiations”.
However, the longer the case drags on, the more expensive it will undoubtedly become. According to the last update, the official insolvency was an “important step” to ensure the repayment of customer funds.