Cameron and Tyler Winklevoss-founded Gemini owes customers more than $900 million tied up in a program it runs with crypto lender Genesis — let’s establish the key details.
Much of the world knows the Winklevoss twins as the Harvard tech bros who claim to have come up with the original concept for what became Facebook. Now, they are at the center of a big crypto crisis wrapped up in FTX’s downfall.
In 2015, Cameron and Tyler Winklevoss co-founded a new company, Gemini, as a crypto asset exchange and custodian allowing users to buy, sell, and store digital assets. From the outside looking in, Gemini seemed like a pretty promising and thriving company, with Tyler serving as CEO and Cameron as President. Still, the company didn’t keep enough cash on hand when FTX’s undoing sparked a mass crypto liquidity crisis across various major exchanges.
When Sam Bankman-Fried stepped down as CEO of FTX in November of 2022, the company filed for bankruptcy to restructure its holdings and try to make sense of what actually happened. Legal proceedings have commenced, and SBF has since been charged with fraud (plus a bunch of other crimes). This affected several crypto lenders and exchanges, and about 130 companies affiliated with FTX have also begun the bankruptcy process, including BlockFi.
Gemini is now in the middle of trying to recover $900 million in customer funds from crypto lender Genesis Trading. The former had worked with the latter as a lending partner to launch Gemini Earn, a program that allows customers to earn interest on their virtual currency holdings — Gemini’s platform promised users could earn up to 8% in annual interest, but Genesis halted the “Earn” program in December when it faced potential insolvency.
So, how are Gemini’s struggles wrapped up in the failure of FTX? Why are the Winklevoss brothers passing the blame off to another crypto lender, and will their company join the growing list of crypto firms filing for bankruptcy?
You have questions, Boardroom has answers.
Who’s really to blame?
The Gemini-Genesis feud began when Genesis halted action on Gemini’s Earn offering. Customers have been unable to withdraw their funds from the program since FTX collapsed in November. There is $900 million in customer funds tied up in the Gemini Earn service, which Gemini says Genisis owes back.
In true tech/crypto feud fashion, Cameron Winklevoss penned an open letter on Jan. 2 to Barry Silbert, the CEO of Digital Currency Group, the parent company of Genesis. In the letter, the Gemini President alleged that DCG owes its subsidiary about $1.6 billion; Cameron accused Silbert of using the funds to “fuel greedy share buybacks” and “illiquid venture investments,” among other things.
“I am writing on behalf of more than 340,000 Earn users who are looking for answers,” Cameron wrote in the open letter. “The idea in your head that you can quietly hide in your ivory tower and that this will all just magically go away, or that this is someone else’s problem, is pure fantasy. To be clear, this mess is entirely of your own making.”
Silbert fired back in one simple tweet, dismissing Cameron’s claims. DCG’s CEO has also made it clear that DCG and Genesis operate as separate economic entities with separate bank accounts, so DCG shouldn’t be liable for Genesis’ debts if owed any. Genesis has been in a rough spot since crypto hedge fund Three Arros Capital fell to its demise last year. The firm owed Genesis over $1 billion. Still, the crypto lender continued its business with Gemini with the help of a $1.1 billion loan from Silbert and DCG.
On Jan. 10, Cameron penned another open letter. This time, he spoke directly to Digital Currency Group’s board members, calling on them to replace Silbert. He specifically accused Genesis and DCG of defrauding Gemini and its Earn customers.
“These parties conspired to make false statements and misrepresentations to Gemini, Earn users, other lenders, and the public at large about the solvency and financial health of Genesis,” Cameron wrote. “[Silbert] has proven himself unfit to run DCG and unwilling and unable to find a resolution with creditors that is both fair and reasonable.”
The group took a page out of Silbert’s own book and clapped back in a single tweet.
Silbert didn’t reply directly to Cameron’s accusations, but he authored an open letter of his own to DCG shareholders.
As of Jan. 18, Digital Currency Group had announced in a letter to investors that it is suspending dividends until further notice; in other words, the crypto conglomerate is canceling payments it had slated to issue shareholders. This is particularly notable because DCG operates five subsidiaries in and around the industry aside from Genesis: CoinDesk, Foundry, Grayscale Investments, TradeBlock, and Luno. The company has also made several external investments in the crypto sector, including Coinbase, Dapper Labs, Decentraland, and Dune Analytics.
Bloomberg reported that Genesis is preparing to file for bankruptcy this week.
Could Gemini do so next?
What happens now?
It’s been nearly three weeks since the Gemini-Genesis controversy began, and it’s still unclear if or when the more than $900 million owned to Gemini Earn customers and creditors will be recovered. Some customers have already banded together to file a class action lawsuit against both companies.
As for the Winklevoss twins, they will more than likely cash in millions for their next big break if Gemini shutters, much like they did with Bitcoin — the pair used $11 million of the $65 million settlement they got from their mid-2000s lawsuit against Mark Zuckerberg over the origins of Facebook to buy Bitcoin in 2013. In 2017, the Winklevosses became some of the first cryptocurrency billionaires based on the value of their holdings.
Cameron and Tyler have already cashed in on the social media industry. Today, they’re still ripping through the crypto world. We might not know exactly what’s next, but we’ll be watching those boys. Even if Gemini tanks right into oblivion, they’ll reappear ready to insert themselves into the center of a new cutting-edge industry.
They always do.
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