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• FTX bankruptcy draws more circles
• Gemini and Genesis in clinch
• Allegations by Genesis boss to CEO of Digital Currency Group
The bankruptcy of crypto exchange FTX was the culmination of a 2022 marked by scandals and shocks for the crypto markets. The consequences for companies in the industry are not yet foreseeable, the business relationships between many crypto companies are too entangled. While FTX founder Sam Bankman-Fried faces charges of fraud, money laundering and other crimes but has pleaded not guilty, the fallout from FTX’s bankruptcy is still not over. Two companies affected by the bankruptcy, the crypto exchange Gemini and Genesis, a subsidiary of the Digital Group, are now arguing over a lot of money in a publicity manner.
FTX bankruptcy puts Gemini and Genesis in trouble
The crypto exchange Gemini, founded by the Winklevoss brothers, had offered customers the “Gemini Earn Program”, under which investors could lend their cryptocurrencies to Gemini and were rewarded with interest of up to eight percent a year. The program partnered with crypto company Genesis, a subsidiary of Digital Currency Group. Genesis, in turn, lent crypto liquidity to crypto firms like Alameda Research, the trading arm of the now-defunct FTX exchange. With the bankruptcy of FTX, Genesis ran into payment difficulties and initially stopped all customer withdrawals. This also affected Gemini, the 340,000 participants in the Earn program are said to have lent cryptocurrencies worth 900 million US dollars to Genesis.
Since Gemini no longer had access to the users’ assets and was therefore unable to pay customers their money or the promised interest, the crypto exchange was sued by customers. The main point of criticism from investors: Gemini did not inform investors enough about the risks of their investment, and the earn program was not registered, which would have secured the customers’ investments as assets.
Cameron Winklevoss shoots at DCG boss Barry Silbert
Gemini CEO Cameron Winklevoss is now passing on the investor pressure and publicly targeting the head of Genesis parent company Digital Currency Group. He published an open letter to Barry Silbert on Twitter, in which he accused him, among other things, of trying to avoid a meeting to find a solution for weeks.
– Cameron Winklevoss (@cameron) January 2, 2023
These are “malicious delaying tactics,” criticizes Winklevoss. In addition, the Gemini boss formulates allegations of fraud against Silbert: He passed on the customer money lent by Gemini to Genesis via a loan to the parent company DCG in order to pursue his own interests with the money. Overall, Genesis owes its company $1.675 billion, Winklevoss writes. “You took that money — teachers’ money — to fund greedy stock buybacks, illiquid venture investments, and kamikaze-style grayscale NAV deals that boosted your trust’s fee-generating AuM. All at the expense of creditors and for your own personal benefit Advantage.”
For his part, Silbert responded on Twitter and said that they had put forward a proposal to solve the problem, but that Gemini had not responded. He also denied that DCG borrowed $1.675 billion from Genesis, that his company had never missed an interest payment to Genesis, and that the next loan was due in May 2023.
There you go again. Stop trying to pretend that you and DCG are innocent bystanders and had nothing to do with creating this mess. It’s completely unique.
So how does DCG owe Genesis $1.675 billion if it didn’t borrow the money? Oh right, that promissory note…
– Cameron Winklevoss (@cameron) January 2, 2023
Winklevoss, in turn, accused Silbert of wanting to present himself as an innocent spectator who acts “as if he had nothing to do with this chaos”. This is “completely dishonest”. There is a promissory note for the $1.675 billion he named.
Crypto experts see DCG as systemically important
The crypto market research company Messari meanwhile has little optimistic forecasts for the outcome of the dispute between the crypto exchange Gemini and the Digital Currency Group. In its crypto outlook for 2023, the team names DCG as one of the systemically important companies in the crypto ecosystem. With Genesis lopsided, “the options are looking pretty bleak,” writes Messari. The experts consider it possible that an out-of-court settlement will be reached with the creditors and that they will agree to a haircut on deposits in return for debt or equity. Alternatively, an insolvency of Genesis would be conceivable, which should entail a long-term process for both the parent company and the external creditors. As a third possibility, the Digital Capital Group could recapitalize itself.
Unanswered questions in this regard include whether DCG or Genesis own the $700 million Grayscale Trust GBTC and the Grayscale Ethereum Trust ETHE. In the latter case, there could be “another wave of contagion” in the crypto market. In addition, it should be clarified whether the bond to Genesis can be terminated. A callable debenture would mean that a Genesis liquidation process would force DCG to repay the money immediately, the Messari report said.
The outcome of the dispute between Gemini and Genesis, or the parent company DCG, is still open.
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