3AC incident sets off a powder keg! DCG takes on $1.1 billion bad debt, reluctant to let Genesis file for bankruptcy.

The lending platform Genesis, which has disclosed a total debt of up to $1.8 billion, has been facing bankruptcy since the FTX incident. However, recent reports indicate that it has billions of dollars in debt relationship with its parent company DCG. If Genesis files for bankruptcy, DCG may also face the same fate.

The Possible Future Directions of DCG and Genesis

In the latest episode of the crypto current affairs commentary show "The Chopping Block," Haseeb Qureshi, Managing Partner at Dragonfly Capital, mentioned that Genesis incurred $1.1 billion in bad debts during the 3AC incident. At that time, its parent company DCG bought this bad debt in the form of a 10-year note based on book value to help it through the crisis.

However, in the situation where the FTX incident led Genesis into another crisis, if Genesis applies for bankruptcy liquidation, the $1.1 billion 10-year note will immediately mature, and DCG will have to pay this huge sum in cash. However, DCG currently does not have that much cash on hand.

Related article: Genesis Timeline from Emphasizing Fund Safety to the Brink of Bankruptcy

In response, Haseeb Qureshi outlined three possible scenarios:

1. Genesis files for bankruptcy, and DCG, unable to pay the $1.1 billion, also files for bankruptcy, leading to a complex bankruptcy process for both parties.

2. Genesis also files for bankruptcy, but in a scenario where Genesis creditors collectively agree, the 10-year note is auctioned at a price below the face value to avoid DCG's bankruptcy assuming investors believe that DCG's bankruptcy would make things worse.

3. Genesis undergoes corporate restructuring, reducing the claims that creditors can make with the common agreement of Genesis creditors, avoiding a bankruptcy process that would be harmful to major creditors.

Messari Founder Analyzes Genesis and Its Creditors' Strategies

Regarding the insights revealed by Haseeb Qureshi, Ryan Selkis, the founder of Messari, provided an analysis on Twitter, stating that the 10-year note for Genesis can be considered a Current Asset, significantly reducing DCG's ability to limit Genesis's bankruptcy liability. This is because if Genesis files for bankruptcy, DCG will have to pay a large sum.

At the same time, the urgency for Genesis to file for bankruptcy will also decrease since they hold "assets."

For Genesis creditors, the urgency to demand Genesis to file for bankruptcy through default notices will also diminish. This is because compared to a 10-year note, the liquidation of assets legally holds more potential to lead to DCG's bankruptcy.

"This makes it more likely that DCG will restructure rather than let Genesis go bankrupt. Assuming the note is indeed callable and Genesis can demand payment, DCG's odds in bankruptcy court plummet. The long silence may suggest that Genesis creditors are giving DCG time to sort this out." Ryan Selkis commented.