Gemini Accuses Crypto Lender Genesis For Acting In ‘Bad Faith’ Over $900 Million Owed To Customer

Gemini Accuses Crypto Lender Genesis For Acting In ‘Bad Faith’ Over $900 Million Owed To Customer

Crypto exchange Gemini claims that the crypto lender owes $900 million to customers who deposited funds into its interest earning product – Gemini Earn. Co-founder Cameron Winklesvoss accused Genesis and its parent company of not cooperating with discussions. 

Cameron Winklevoss, co-founder of crypto exchange Gemini, has written an open letter criticising Barry Silbert, CEO of Digital Currency Group (DCG) – parent company of crypto lender Genesis Global Capital, for acting in “bad faith” in relation to their business partnership. 

On November 16, in the wake of crypto exchange FTX’s bankruptcy, the institutional lending arm of Genesis announced that they were temporarily halting fund withdrawals and issuance of new loans to clients. At the time, the company revealed that its derivatives unit had $175 million worth of assets locked in a trading account on Sam Bankman-Fried’s exchange. However, Genesis tried to raise $1 billion in funding from its shareholders to continue operations, which failed to materialise before a pre-assigned deadline, resulting in the company suspending all services.

The same day, Gemini paused all withdrawals on its ‘Gemini Earn’, a product released by the company in 2021 that allows customers to lend their crypto assets to institutional clients in return for yields and other rewards. The lending account offered users up to 8% APY (annual percentage yield) depending on the token they deposited. Genesis was the main lending partner of Gemini Earn. It is reported that both Gemini and Genesis owe somewhere around $900 million to Earn customers. 

In an effort to recover the locked funds, Gemini formed a creditors committee on November 20, and also launched the Gemini Trust Centre, a dashboard showing funds held by the crypto exchange in its reserves and the legal rights obtained by the company to provide its services in locations around the world. The crypto firm founded by Cameron and Tyler Winkelvoss assured customers that all funds held by the exchange on their behalf are backed 1:1 with original assets in reserves. 

On January 2, Cameron Winklevoss posted an open letter on Twitter addressed to DCG head Barry Silbert, accusing the company and its CEO of engaging in “bad faith stall tactics”. In the letter, Cameron claims that his company has been waiting for six weeks to receive a word on repayment of the $900 million owed by Genesis. The co-founder says that Gemini made two proposals regarding reaching a resolution, one on December 17 and another on Christmas day. Apparently, DCG failed to respond to the proposals and is not cooperating with discussions. 

The letter also states that Digital Currency Group owes $1.675 billion to Genesis, which is now being used to fund other operations of DCG instead of repaying creditors. Winklevoss claims this fund is what is owed by Genesis to Gemini Earn customers. The founder has given a deadline of January 8, before which DCG has to “publicly commit” to working together with Gemini in order to solve the crisis. 

In response to the letter, Silbert tweeted that DCG did not borrow $1.6 billion from Genesis. The CEO said that his company has never missed any interest payments to its crypto lending subsidiary and is current on all outstanding loans. However, DCG does have a $1.1 billion promissory note on Genesis that is related to its exposure to ex-crypto hedge fund Three Arrows Capital (3AC). In July, 3AC defaulted on a $2.3 billion loan given to the company by Genesis, which negatively impacted its liquidity. In November, Silbert wrote a letter to shareholders stating that DCG has a $575 million liability to Genesis that is due this May. 

Silbert claims that DCG responded to Gemini’s proposal on December 29 and had not received any response from Winklevoss or his team. Genesis is currently working with restructuring lawyers to prevent insolvency and repay creditors. 

Meanwhile, Gemini is facing major financial and legal troubles. Last week, Gemini Earn customers filed a lawsuit against the Winklevoss twins and their company alleging fraud and securities law violations. Customers are still not able to withdraw their funds from the interest earning accounts. 

Also Check: IMF Warns 2023 Will Be A Tough Year For The Global Economy 

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