The co-founders of the US cryptocurrency exchange Gemini are accusing the Digital Currency Group (DCG) of "maliciously delaying tactics" in connection with $900 million in debts owed to their customers. DCG CEO Barry Silbert denied the allegations and said that DCG had never missed a payment to Genesis.
Gemini offered its customers the so-called Gemini Earn Program. Unlike similar programs at other central cryptocurrency firms, this is not staking or liquidity farming, but rather cryptocurrency loans. Participants were able to put their cryptocurrencies in the hands of Gemini and the trust was rewarded with interest rates of up to 8%.
Generating returns through lending
Gemini's crypto earn product was implemented in partnership with DCG's cryptocurrency firm Genesis. The institutional lender had connections with various high-profile cryptocurrency trading firms, to which liquidity was loaned in exchange for high returns. This included Sam Bankman-Fried's Alameda Research. Following the FTX debacle, Genesis predictably fell into a liquidity crisis and had to stop all withdrawals. The 340,000 Earn participants had loaned cryptocurrencies worth $900 million to Genesis. Since mid-November, Gemini customers have not been able to access either interest or their loans.
This prompted investors to file a class action lawsuit against Gemini and the Winklevoss twins on December 27. According to the plaintiffs, Gemini failed to register the customers' investments and secure them as assets. The lawsuit also criticized that the termination of the program made it impossible to repurchase and effectively destroyed the customers' money. It is worth noting that the DCG subsidiary Genesis Global was unable to repay the cryptocurrency loans to the Gemini Earn investors due to the FTX collapse. Simply put, Gemini no longer has the money of its customers. This is not an easy situation for the twins.
Accusations against the parent company DCG
In an open letter on Twitter, Cameron Winklevoss accuses DCG CEO Barry Silbert of delaying a consensual solution. A compromise has not been reached in six weeks, and his behavior towards Gemini's customers is unscrupulous, according to the co-founder of Gemini. The Digital Currency Group owes its subsidiary Genesis $1.675 billion, which was used for investments in other companies instead of repaying creditors, he said.
"You took that money - teachers' money - to fund greedy share buybacks, illiquid risk investments, and kamikaze Grayscale NAV deals that drove up your trust's fee-generating AuM. All at the expense of creditors and for your own personal benefit." - Cameron Winklevoss, Gemini President
Silbert merely replied on Twitter that DCG did not lend $1.6 billion to Genesis. He also stated that he had made a proposal to Gemini's advisors, but had not yet received a response. Cameron Winklevoss, in turn, correctly stated that the Digital Currency Group holds an open promissory note loan of $1.1 billion from Genesis. It is likely that the court will be the one to determine how this Twitter war between the two billionaires will end for Earn customers.
UPDATE: “we do not expect DCG/Genesis to meet the Jan 8 deadline. We expect a protracted legal battle and are prepared for one.
**a source on the legal/advisory @Gemini team
— Andrew (@AP_Abacus) January 2, 2023
