A new narrative seems to be unfolding in real time as investor confidence appears to be at an all-time low thanks to the recent slew of bankruptcies. This includes the Winklevoss twins of crypto exchange Gemini and Barry Silbert, CEO of Digital Currency Group (DCG) (parent company of crypto market maker and lender Genesis). included.
Cameron Winklevoss January 2nd published an open letter It offered Barry Silbert a candid and seemingly adversarial assessment of DCG’s existing business practices, while reminding us of the fact that “it’s been 47 days since Genesis stopped withdrawing.”
“Over the past six weeks, we have done all we can to engage with you in an honest and cooperative manner to reach a consensual settlement that will pay off $900 million that you owe. .”
The letter further states that the aforementioned amount is Lend to Genesis As part of Gemini’s Earn program, we enable our clients to earn annual yields of up to 7.4% on cryptocurrencies. Cameron then issued another tweet requesting Silbert to “publicly commit” to resolving the issue by Jan. 8.
I’m getting nervous
Genesis’ ongoing problems stem from the fact that a significant portion of its funds (worth an estimated $175 million) are locked in FTX trading accounts. After the collapse of the once number two cryptocurrency exchange at the end of last year, the company had to stop withdrawals On November 16th, he hired the consulting services of investment bank Moelis & Company and was reportedly out of the woods just a week later.
In a December 7 letter, Genesis interim CEO Dellal Islam said: said to the client “It will take weeks, not days, to get us on the road forward.” In response, Winklevoss and company hired investment banker Houlihan Lokey to “solve the liquidity problem. ” and devised a framework to ensure that members of Gemini’s Earn program cannot be repaid.
Then, on December 27th, things took an ugly turn. Investors sued the twins The two have been charged with fraud and several violations of US securities laws over funds blocked in the Earn program.
Additionally, Silbert responded to Cameron’s constant Twitter nudges on Jan. 2, pointing out that Genesis had already taken action regarding Gemini’s proposal, arguing DCG’s innocence, and stating that the company had made a move to Genesis. In response, Cameron tweeted:
See you. Please stop pretending that you and he are innocent bystanders to DCG and have nothing to do with causing this mess. It’s completely dishonest.
So why does DCG owe Genesis $1.675 billion if it doesn’t? Oh yeah, that promissory note…
— Cameron Winklevoss (@cameron) January 2, 2023
Gemini exits acquisition program with Genesis
After weeks of turmoil, on January 10th, the Winklevoss twins emailed users to confirm that Gemini was Finished main acquisition program With Genesis two days ago. The move is the latest in a number of attacks waged between the company and cryptocurrency lenders, the email states:
“We are pleased to inform you that Gemini, acting as agent on your behalf, has terminated the Master Loan Agreement (MLA) between you and Genesis Global Capital LLC (Genesis), effective January 8, 2023. ”
The message then stated that Genesis had to liquidate all outstanding assets held in connection with the program and until last month had offered users up to 8% interest on their cryptocurrency holdings. It added that it will take effect immediately.
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Currently, Gemini officials continue to look for ways to return customers’ money as soon as possible, so customers can see their earned balance under the “Pending” column. “Returning your assets is our top priority and we are continuing to work with the utmost urgency,” the email said.
at the end, Claim Gemini, which was filed in court on January 8 in response to a class action lawsuit filed by a customer of Gemini Earn, said the company, like its customers, was a victim of the conduct of Genesis and the DCG Group, saying that the company’s executives “mislead defendants about Genesis, its financial condition, and its ability to act as a responsible borrower in the Gemini Earn Program.”
Gemini denies all allegations against the company by its customers, has all signed an agreement to “arbitrate claims related to the Gemini Earn Program,” and the various claims and causes of action initiated by the plaintiffs have been sued. said it shouldn’t. In any forum, unless Genesis is also involved.
SEC Indicts Genesis and Gemini
January 12, US Securities and Exchange Commission Charged Gemini and Genesis He allegedly sold unregistered securities as part of the Earn offering. According to the regulator, Genesis rented out assets generated by Gemini users and sent a portion of the profits back to Gemini, who returned the remaining profits to customers after deducting an agent fee of about 4%.
Genesis will have to register the program as an offering of securities, according to SEC officials, and Chairman Gary Gensler will let “cryptocurrency lending platforms and other intermediaries” know what they need. For this reason, it added, the charges are designed to be based on previous such actions. Comply with established securities laws of regulators.
The SEC said the Earn program has directly impacted a whopping 340,000 investors, and between January 2022 and March 2022 alone, Gemini will use client assets to conduct various lending activities. and as collateral for personal loans. In the same three-month period, Genesis generated $169.8 million in interest income and paid $166.2 million in profits to clients (including Gemini), the agency claimed.
Among Genesis’ major backers were cryptocurrency hedge fund Three Arrows Capital and Sam Bankman-Fried’s Alameda Research.
rocky road ahead
To get a better overview of the issue, Cointelegraph reached out to Rachel Lin, co-founder and CEO of SynFutures, a decentralized exchange for crypto derivatives. In her view, Genesis failed to properly hedge portfolio risk and manage its finances, and its balance sheet was heavily impacted by the FTX contagion. she added:
“Silbert has not yet fully acknowledged this failure and sees his recent actions as stalling tactics and is seeking urgent liquidity. Rather than calling it a publicity stunt, both parties should prioritize user deposits as they have contractual obligations.”
And while Gemini’s termination of its master loan deal with Genesis may be a way of deflecting blame and playing victim, in the long run, the move puts additional pressure on Genesis, so Earn deposits. Lin thinks it could be a net positive for people. Pay back your debt to Gemini.
Lynn said: While the company claims it has conducted adequate due diligence on Genesis, it clearly did not do enough. . ”
Matthijs de Vries, founder and chief technology officer of blockchain technology firm Allianceblock, told Cointelegraph that while it is difficult to know exactly what the situation is, the issue is a clear indication of centralization. He said it didn’t matter because it resurfaced the problem. he added:
“Trusting individuals, not smart contracts, means trusting people, not technology. It’s important to own your assets and be able to manage those assets the way you want.”
He went on to say that the tactics Silbert is using don’t look good for the company.And the industry as a whole needs to learn from this, instead of just holding the blame, de Vries said. claimed. “Blockchain was built to trust and decentralize one’s assets rather than powerful individuals,” he concluded.
Jeremy Epstein, chief marketing officer of Radix, a decentralized finance (DeFi) smart contract platform, shared a similar sentiment, telling Cointelegraph that the episode was about the need for a transparent ledger and decentralized finance. He said the system will further enhance the visibility it provides. In his view, when there is a centralized entity that can hide books behind walls, it becomes very difficult to foster trust, further damaging the reputation of the industry.
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Finally, Liu Sheng, lead developer of Opside, a multi-chain three-tier architecture for high-throughput Web3 applications, argues that DeFi and decentralized autonomous organizations can benefit from it because users don’t have to transfer ownership. He told Cointelegraph that such instances will never see the light of day. of an asset when seeking yield. Shen added:
“We hope that this implosion of centralized service providers will bring us one step closer to a decentralized economy where greed can be managed in a more transparent atmosphere. We will be able to convince retail investors that is safe.”
The SEC’s latest action seems to have changed the trajectory of the whole story, especially when Tyler Winklevoss said on January 13th: Gemini was nearing resolution He said the SEC’s action was completely unnecessary due to the client’s ongoing predicament. He tweeted:
1/ unfortunately @SECGov chose to file a lawsuit today as @gemini Other creditors are working hard to cooperate and collect the funds. This action does not further our efforts and does not help Earn users recover their assets. Their actions are completely counterproductive.
— Tyler Winklevoss (@tyler) January 12, 2023
As more details about the incident emerge, it will be interesting to see how the two companies and the digital asset industry continue to play out going forward, especially as the market experiences a significant lack of investor confidence. .
