Digital Currency Group’s Bold Move: $1.1 Billion Promissory Note Sparks Genesis Lawsuit

The cryptocurrency world often sees significant financial disputes. Now, a major legal battle unfolds involving two prominent entities: Digital Currency Group (DCG) and its subsidiary, Genesis. This new **Genesis lawsuit** highlights the intricate financial relationships within the crypto ecosystem, especially following recent market upheavals.

Digital Currency Group Initiates Legal Action

Venture capital firm Digital Currency Group (DCG) recently filed a complaint against two of its subsidiaries. These include Genesis Global Capital and Genesis Asia Pacific. The filing occurred in the US Bankruptcy Court for the Southern District of New York. DCG claims its subsidiaries owe overpayments. These payments relate to recoveries from the collapse of Three Arrows Capital (3AC).

Specifically, DCG issued a $1.1 billion **promissory note** to the Genesis entities. This note was a safeguard against the 2022 default of 3AC. DCG now alleges that Genesis profited significantly. They reportedly gained “hundreds of millions of dollars” without suffering any loss from the 3AC default. Therefore, DCG asserts that Genesis must return these payments.

Unraveling the Promissory Note Dispute

DCG issued the 10-year promissory note to Genesis Global Capital in June 2022. This action aimed to protect against a potential “hole” in Genesis Asia Pacific’s equity. Such a shortfall could have resulted from 3AC’s collapse. 3AC was one of Genesis’ borrowers. However, DCG now contends that Genesis did not face significant liquidity problems. Instead, Genesis allegedly “reap[ed] a massive windfall.” Consequently, DCG believes Genesis is obligated to return payments made on the promissory note.

This complaint marks the latest legal entanglement between DCG and Genesis. Genesis had previously filed lawsuits against its parent company, affiliates, and CEO Barry Silbert in May. These earlier lawsuits alleged fraud, insider enrichment, and concealed transfers. Genesis sought $3.3 billion, claiming DCG withdrew funds before Genesis’ bankruptcy. This ongoing **Genesis lawsuit** illustrates deep-seated financial disagreements.

Three Arrows Capital Collapse and its Ripple Effect

The $1.1-billion promissory note directly responded to the collapse of **Three Arrows Capital**. Genesis faced a potential equity shortfall in the second quarter of 2022. Yet, cryptocurrency prices eventually recovered. This recovery allowed Genesis to utilize 3AC’s collateral. Specifically, shares of Grayscale’s Bitcoin Trust increased in value. This rise in value occurred with the price of Bitcoin. Genesis then profited from the loans. This outcome contradicted the initial purpose of the promissory note.

The filing states: “[T]he incremental amounts realized by Genesis after issuance of the Note were, based on the pleadings filed by Genesis in this Court seeking approval of that transaction, far more than sufficient to overcome the prior $1.1 billion collateral shortfall—and, on information and belief, allowed Genesis to profit from [3AC]’s default by recovering nearly $2.8 billion on the original $2.36 billion in [3AC] Loans.” This statement underlines the substantial gains Genesis allegedly made from 3AC’s default. Digital Currency Group complaint against Genesis. Source: US Bankruptcy Court for the Southern District of New York

The Broader Crypto Bankruptcy Landscape

The crypto market crash of 2022 caused widespread issues. Many experts link it to the collapse of the Terra ecosystem. This period led to multiple bankruptcies and severe liquidity problems. Millions of retail investors lost significant funds. Amid this market uncertainty, FTX, once a major cryptocurrency exchange, filed for bankruptcy. Several of its executives also faced fraud indictments.

The filing clarifies Genesis Global Capital’s exposure to FTX. “While [Genesis Global Capital’s] direct credit exposure to FTX was not material, the FTX bankruptcy spawned the equivalent of a tsunami in the crypto world, causing broad and lasting effects including [Genesis Global Capital’s] bankruptcy filing on January 19, 2023 due to the ‘run on the bank’ that ensued in November 2022 and caused Genesis to halt withdrawals.” This passage explains the cascading impact. It further notes: “Even had [3AC] not defaulted in June 2022, [Genesis Global Capital] would not have had sufficient capital to withstand the unexpected and devastating market rout that followed the collapse of FTX in November 2022, which also led crypto lender BlockFi to file for Chapter 11 bankruptcy in the same month.” These events highlight the interconnected nature of the **crypto bankruptcy** crisis.

Genesis’ Restructuring and Digital Currency Group’s Demands

Genesis filed for bankruptcy. Following this, the company completed its restructuring plan in August 2024. They announced the disbursement of approximately $4 billion in funds to affected parties. Despite this, **Digital Currency Group** continues its legal pursuit. DCG now requests the court to order Genesis to pay more than $105 million plus interest. This demand directly relates to the initial $1.1 billion **promissory note** and the alleged overpayments.

This ongoing legal battle between a parent company and its subsidiaries remains significant. It underscores the complex financial arrangements and risks within the digital asset space. The outcome will likely set precedents for future disputes. It will also impact how companies manage risk during market downturns. This case further illuminates the challenges faced by firms navigating the aftermath of the 2022 crypto market crash.