Crypto Lending Platforms Hit Hard as Contagion Spreads

investopedia.com:

The crypto lending industry, which handed borrowers billions of dollars in just the past few years, faces its biggest crisis yet as some of its leading firms implode.

Genesis Global Capital, which doled out $130 billion in 2021, filed for bankruptcy last week and joined BlockFi Inc., Celsius Network, and Voyager Digital among companies that have collapsed, leaving investors frustrated and regulators scrambling.

Genesis was the biggest unsecured creditor of failed trading platform FTX, whose former CEO, Sam Bankman-Fried, faces fraud charges. Due to FTX's collapse, Genesis went into financial trouble, forcing crypto exchange Gemini to terminate its lending product in which Genesis was a lending partner.

''I won't be surprised if this is the end of the types of [lending] programs we saw throughout the past few years,'' said prominent crypto critic and computer scientist Molly White. ''They promised high returns for relatively low risk, and ultimately proved that that wasn't sustainable.''

It's not the first time that critics have engaged in a bit of schadenfreude at the expense of the crypto industry. Some analysts have practically built careers predicting the imminent demise of a system that was deliberately built on existing outside the traditional banking system. Yet this time seems different because it's not just the investors who are hurting but the quasi-bank firms that provided the rocket fuel to spark growth.

Moreover, the SEC has been cracking down on crypto lending products by calling them securities. The financial watchdog even fined BlockFi to pay $100 million in penalties and forced Coinbase to cancel its crypto lending program.Most recently, it fined crypto lender Nexo for launching its product.

The crypto