Messari founder outlines best-case scenario for a struggling DCG

DCG can attract the necessary funding only when the obligations of the troubled OTC platform Genesis Global Capital are defined, capped, and not growing. This was stated by Messari founder and CEO Ryan Selkis.

1/ A path forward for DCG, Genesis, and Grayscale.

Not financial advice. Purely speculative (but optimistic) bet on what happens next.

👇

— Ryan Selkis 🥷 (@twobitidiot) November 22, 2022

The expert reminded of the community version about DCG’s debt to its subsidiary Genesis in a $1.1 billion promissory note, hidden from potential investors.

On November 18, it became known about the unsuccessful attempts to raise emergency financing of $1 billion for Genesis Global Capital by the morning of November 14. The request was filed before the platform’s suspension of crypto-lending operations after the collapse of FTX.

According to Selkis’s assessment, to avoid Genesis’s bankruptcy, a sum of $500 million to $1 billion is needed. Because of the collapse of hedge fund Three Arrows Capital (3AC), the unit lost more money ($2.36 billion) than it had earned since inception. The resulting “hole” was bridged by the promissory note mentioned above.

The parent DCG currently has negative net assets. The holding includes Grayscale, generating $250–300 million in management fees from digital assetsGrayscale. The financial health of DCG is now entirely tied to the latter.

The company is currently preparing for Genesis’s bankruptcy under Chapter 11 of the US Bankruptcy Code.

According to the expert, this will hurt the reputation of Barry Silbert’s group of companies, but it’s a ‘bitter pill’ that is better swallowed for all sides of the process. Thus, creditors will believe that DCG fully backs Genesis, while the parent company may ‘escape’, arguing that it is also a victim in the bankruptcy.

«If creditors agree to the terms, then today everyone will have more liquidity, fewer legal costs (possibly), overall damage», — Selkis explained.

In his view, DCG could offer creditors claims against 3AC/FTX/Alameda in bankruptcy proceedings and warrants on DCG/Grayscale.

From the outside, the scenario may look like Russian roulette. However, it is probably the best among all possible. Not all is lost yet, but time is ticking, he added.

Selkis predicted that some Genesis creditors will convert their claims into preferred shares or new DCG debt, as well as warrants (in a scheme similar to the 2008 crisis when investor billionaire Warren Buffett supported Goldman Sachs). The process should be overseen by a reputable organization.

My prediction is that a portion of Genesis creditors roll their claims into DCG holdco preferred or debt + warrants (the Buffett-Goldman deal), potentially led by a reputable debt or growth fund, and does so by Tues, or winter gets chillier.

ReFi the debt!

— Ryan Selkis 🥷 (@twobitidiot) November 23, 2022

«There are many things that led to this mess, but the current situation seems addressable. I am not directly involved, I just want to see a good resolution», — the expert concluded.

Earlier, the founder of Messari called the bear market ‘useful’ for the industry.

Earlier on November 22, it was reported Binance’s refusal to rescue Genesis Global Capital.

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