- Cooperation between Gemini and DCG Genesis
- Scandal is heating up
- DCG denies the accusations
- Amid crisis, companies stick to the approach “every man for himself”
The meltdown of Sam Bankman-Fried’s FTX continues to affect the industry. Cameron Winklevoss, Gemini’s founder, has accused Barry Silbert of “bad faith stall tactics” and suspending 900 million US dollars in customer assets.
Cooperation between Gemini and DCG Genesis
In its joint project Gemini Earn, the lending partner Genesis Global Capital was responsible for granting loans to customers. Officially, Genesis belongs to the conglomerate Digital Currency Group (DCG), but it is fully autonomous.
After FTX’s meltdown, it turned out that the subsidiary of DCG Genesis had around 175 million US dollars tied up in the accounts of the bankrupt exchange. The parent company DCG, managed by Barry Silbert, decided to strengthen Genesis’ balance sheet, and invested 140 million US dollars.
In November, Gemini Trust Co., a company founded by Winklevoss and his twin brother, suspended redemptions on Earn — a lending product which offered investors up to 8% in interest on their digital coins. The suspension resulted from the lack of liquidity at Genesis Global Capital. As a result, the clients’ funds were loaned to the crumbling giant, trying to prevent Silbert’s empire from facing the same fate as FTX.
The payments were halted as soon as Genesis had suspended redemptions and new loans at its lending unit. The company’s representatives had informed clients that they could need weeks to solve the problems, suggesting that bankruptcy was also an option.
Scandal is heating up
Seeing no adequate solutions from Silbert, Winklevoss lost his patience. Over the past month, Gemini has experienced pressure from furious clients locked out of their accounts and a fraud lawsuit.
In his open letter published on January 1, Winklevoss stated he had presented to Silbert numerous proposals on how to solve the problem, the latest of such proposals provided quite recently, on December 25. He accused Silbert of getting the company in trouble, referring to DCG’s debt to Genesis in the amount of 1.675 billion US dollars. DCG had invested the money into other business purposes within Silbert’s conglomerate. Winklevoss said that Genesis owed this money to Earn users and other creditors.
“It’s not lost on us that you’ve been working desperately to try and firewall DCG from the problems that you created at Genesis… You should dispense with this fiction because we all know what you know — that DCG and Genesis are beyond commingled,” Winklevoss wrote.
According to Winklevoss, DCG has used the money borrowed from Genesis “to fuel greedy share buybacks, illiquid venture investments, and kamikaze Grayscale NAV trades.” Winklevoss referred to Silbert’s other business, Grayscale Investments, with its largest investment vehicle — the Grayscale Bitcoin Trust. Winklevoss stated that DCG had acted at the expense of their creditors, for their own personal gain.
DCG denies the accusations
In its response tweets, Silbert has denied the accusations, insisting that DCG had not borrowed the specified amount from Genesis, had always effected all interest payments to Genesis, and did not have any overdue obligations, although he did not provide more detail. He added that DCG had provided a proposal for resolving the issues to Genesis and Winklevoss’s consultants on December 29 but had not received any reply.
In its statements and tweets, DCG has strived to prove being insulated from Genesis and its issues. As soon as Genesis had suspended payments in November, DCG hurried to disengaged itself from the subsidiary’s problems and tweeted “this temporary action has no impact on the business operations of DCG and our other wholly owned subsidiaries.”
In November, Silbert wrote a letter to shareholders and said that intercompany loans were made “in the ordinary course of business.” Silbert added that DCG had a liability of 575 million US dollars to Genesis. He also wrote about a promissory note in the amount of 1.1 billion US dollars, due June 2032. According to him, it had resulted from the parent company assuming Genesis’ liabilities associated with the meltdown of Three Arrows Capital, a digital-assets hedge fund.
На фоне кризиса работает девиз «Каждый сам за себя»
Winklevoss has stated that the problem affects over 340,000 Earn clients and has asked Silbert to “publicly commit to working together to solve this problem.” He added that it should be done by January 8, not specifying what would happen otherwise.
The brothers’ aggressive position is the result of a fraud lawsuit brought against Gemini. Investors accuse Gemini, stating that the Earn product was actually an interest-bearing account that the company had failed to register as a security.
This controversy is illustrative of the recent crypto crises affecting the long-standing ties within the industry. The idea of “we’re going to make it together” was supported only as long as companies had the money to do it. As soon as liquidity shortage became an issue, the “every man for himself” attitude became prevalent.
However, this approach is not viable in the long term. It has become obvious after one major market participant’s meltdown has resulted in problems for many others. It seems that as long as crypto giants do not learn to cooperate in the time of troubles, crypto winter is here to stay.
