Genesis has twice denied significant exposure positions, is lying openly becoming a top risk control strategy?

After the FTX incident, how should investors interpret the official statements from major institutions? Genesis initially stated no significant exposure to 3AC and FTX incidents, but in reality, there were dealings, with the FTX incident leading Genesis to announce a temporary suspension of withdrawals. Has blatant lying become a risk control strategy?

Genesis

Genesis is a wholly-owned subsidiary of the Digital Currency Group (DCG), a digital currency conglomerate. Entities under DCG include asset management firm and GBTC issuer Grayscale Investments, as well as renowned blockchain media outlet CoinDesk.

How did Genesis respond to the 3AC crisis?

The liquidity crisis of 3AC, a venture capital firm, began in mid-June. Cryptocurrency industry players began to disassociate themselves from 3AC, but Genesis CEO Michael Moro's explanation on 6/17 was relatively cryptic:

We've mitigated a loss from a large counterparty who failed to meet a margin call. We liquidated the collateral, hedged the risk, and moved forward. Business is operating as usual, and we are meeting all client needs.

It wasn't until 6/30 that Michael Moro admitted on Twitter that the counterparty in question was 3AC.

Genesis initially provided loans of up to $2.36 billion to 3AC, with over 80% in margin requirements. When 3AC failed to maintain the conditions, Genesis sold off the remaining collateral. At that time, the extent of the loss was still unknown to the public.

Subsequently, 3AC declared bankruptcy, revealing in legal documents that Genesis had claimed $1.2 billion from 3AC.

Michael Moro also announced his resignation on 8/25.

Genesis faced with FTX incident again

Genesis first clarified on Twitter on 11/9 that they had no significant exposure positions and did not hold any exchange platform tokens, claiming that their experienced trading and risk management team had been continuously evaluating credit risks, volatility, liquidity, etc., in the market.

It wasn't until the evening of 11/16 that Genesis announced the suspension of withdrawals due to the FTX incident.

Genesis stated that the default of 3AC had a negative impact on their liquidity, and the FTX incident resulted in withdrawal demands exceeding the platform's liquidity. After consulting with professional and legal teams, they decided to temporarily suspend loan redemption and application functions.

We recognize how challenging this past week has been due to the impact of the FTX news. At Genesis we are entirely focused on doing everything we can to serve our clients and navigate this difficult market environment.

— Genesis (@GenesisTrading) November 16, 2022

Even lending platforms catering to institutions can be so opaque, so it's not surprising that smaller platforms have begun issuing all sorts of strange announcements during crises.