Winklevoss vs. Silbert: $900 M Crypto Faceoff

Genesis used Gemini as a lending partner and had customers deposit $900 million with Genesis.
Post FTX-saga, genesis had halted withdrawals, and money was stuck.
Winklevoss brothers had placed the blame on Barry Silbert.

Faceoffs are very interesting, be it in any field, now Digital Currency Group founder Barry Silbert and Gemini’s Winklevoss brothers are in a $900 million crypto faceoff.

Silbert and Winklevoss are linked through Earn, an almost two-year-old Gemini product that offers up to 8% returns on customer deposits. Gemini used to loan clients money to Genesis for placements across many crypto borrowers and trading desks using Earn.

With the rising digital currency market in 2020 and 2021, this capital created high returns for Genesis, which led them to easily pay off the yields of Earn users. This method seemed very lucrative when the Federal Reserve’s benchmark rate was almost zero. At the same time, Celsius and Voyager Digital used to offer a higher yield of almost 20%.

At the time, it was all going great as Genesis had a team of 260 employees and a great sales desk, while Gemini worked as a great lending partner sending them $900 million worth of business. As per the person with direct knowledge of the business, Gemini considered Genesis, a New York state and SEC-regulated firm, a reliable crypto lending partner. This endeavor was risky as diversification was challenging, and other players had less to lose.

One of the worst years in crypto history caused many hardships for all, and the Earn model failed, the market went south, hedge and lender funds dried up, borrowers couldn’t pay the debts, and all the activities came to an abrupt stop.

With the FTX implosion in November 2022, the black swan event affected all, and customers of the once-third-largest exchange could not access their funds. Its founder Sam Bankman-Fried was charged with 8 counts of wire fraud and conspiracy, to which he pleaded not guilty.

This incident created a domino effect across the industry, causing an influx in withdrawal effect across exchanges, further intensifying the liquidity crunch. Just five days after the FTX collapse, Genesis had to freeze withdrawals and new lending.

The default of 3AC negatively impacted the liquidity and duration profiles of our lending entity Genesis Global Capital. Since then, we have been de-risking the book and shoring up our liquidity profile and the quality of our collateral.
— Genesis (@GenesisTrading) November 16, 2022

After the effects of the collapse spread like wildfire, so much so that Gemini and Genesis had to hire experts to guide them through a potential Genesis bankruptcy.

All Earn withdrawals had been frozen since November, and Gemini’s 340,000 retail clients were furious, pushing some of them to file a class action lawsuit against Gemini and Genesis.

Winklevoss blamed Silbert for this, going public with the fight to recoup the $900 million client deposits in Genesis.

Winklevoss said that Gemini has been trying for the past six weeks to engage in a “good faith” manner with Silbert and getting “bad faith stall tactics” in return. Sources even say that Gemini’s attorneys attempted to work with that Gemini throughout the Thanksgiving holidays but got ice cold response.

Winklevoss even followed up with an open letter for Silbert’s replacement with the DCG’s board.

During this troubled time, Genesis assured Gemini that DCG remains strong and solvent and is protected by its parent company, assuring that liquidity was not of any concern.

Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing