Genesis and Gemini: A Tumultuous Crypto Journey
The twin-engineered exchange, Gemini, is tentatively seeking the sum of $1.1 billion from Genesis for its users part of the Earn program, in bankruptcy court. The platform together with Genesis, an entity under the Digital Currency Group (DCG), had a prior fiscal alliance targeted at the Earn program, which allowed users to lend tokens via Genesis, accruing yields on their cryptocurrency assets.
Genesis on the Verge of Bankruptcy
In the wave of the collapse of FTX back in November 2022, Genesis seized customer withdrawals. At the same period, Genesis disclosed that its derivatives trading arm had approximately $175 million locked in the crypto exchange. By January, Genesis filed for Chapter 11 bankruptcy protection. An initial attempt at bankruptcy settlement with Genesis, DCG, Gemini, and other creditors in February failed to thrive.
Legal Battles and Investigations Ensue
Genesis and its parent company DCG, along with founder Barry Silbert, were subsequently sued by Gemini in July. The charges pinned on them included “fraud against creditors”, with Gemini seeking to recover around $1.1 billion of stranded assets on Genesis. DCG reacted to the lawsuit terming it as a publicity ploy by Cameron Winklevoss, with both companies maintaining a hostile relationship since then.
The legal disagreement sparked an investigation by the U.S. Federal Bureau of Investigation and the Securities and Exchange Commission (SEC). Earlier in the year, the SEC had filed charges against Gemini and Genesis over an alleged unregistered securities offering relating to the Earn program.
Looking Forward: A Potential Resolution
Recently, DCG proposed a new creditor agreement in Genesis’ bankruptcy, potentially enabling Gemini Earn users to recover all their crypto. The proposed agreement promises unsecured creditors a 70-90% baseline recovery, with a significant portion in digital currencies; Gemini Earn users could receive up to 110% of their claim due to the collateral Genesis posted to Gemini in the form of 31 million GBTC shares—now worth $607 million.
However, the legal and financial rollercoaster is far from over as DCG has criticised Gemini for its lack of financial contribution to ensure better recovery for Gemini Earn users, with Gemini responding to these allegations by accusing DCG of “gaslighting.”
Key Points Summary
What happened prior to Genesis’ bankruptcy?
The Winklevoss twins-owned crypto exchange, Gemini, pulled out $282 million from the crypto lender just months before Genesis declared bankruptcy.
What was the relationship between Gemini and Genesis?
Both companies previously worked together on Gemini’s Earn program, allowing users to lend their tokens via Genesis to earn yields on their cryptocurrency assets.
What legal actions have taken place?
Legal battles ensued when Gemini sued Genesis, DCG and its founder for “fraud against creditors”, leading to ongoing investigations by the SEC and the FBI.
What is the potential resolution for Gemini Earn users?
A new creditor agreement proposed by DCG could allow Gemini Earn users to recover all their crypto, offering a 70-90% baseline recovery for unsecured creditors.
How have Gemini and DCG responded to the situation?
While DCG criticised Gemini for not financially contributing to ensure a better recovery for Gemini Earn users, Gemini accused DCG of “gaslighting.”
