Crypto Exchange Gemini Amends Terms of Service as Gemini Dollar, Its Own Stablecoin, Caught in Market Contagion

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Cameron and Tyler Winklevoss pictured at a film premiere in 2018.

Getty Images The Winklevoss twins crypto exchange lured investors to its dollar-pegged stablecoin GUSD by promising eye-watering rates of return. Now those funds are frozen and the demand for Gemini dollars is plunging.

Last December, Daniel Zukich decided to put $10,000 into Gemini Dollars (GUSD), the stablecoin operated by crypto exchange Gemini. Gemini Earn, the company’s lending program, offered Zukich a hefty 8% return on its digital tokens.

He had the highest return in the Gemini Earn program. It was a no-brainer, says Zukich, a New York state resident. [Its price] don’t move because it’s their stablecoin. I thought to myself, why not put my money in it?

On Nov. 16, Gemini announced that the crypto lender it partnered with for the Gemini Earn program, Genesis Global Capital, had halted customer withdrawals, leaving customers like Zukich wondering if they would ever see their money again. . Gemini Earn clients collectively owe some $900 million, the Financial Times reported and Forbes confirmed with a source last week. The ban on withdrawals came after Genesis suffered losses of more than $1.8 billion due to bad loans it made to bankrupt crypto firms, including hedge fund Three Arrows Capital (which went bankrupt in July) and the infamous Sam Bankman-Frieds Alameda Research hedge fund.

When Gemini launched its stablecoin GUSD in September 2018, it promised users a reliable and regulated digital dollar that would combine the solvency and price stability of the US dollar with blockchain technology and oversight from US regulators. Geminis stablecoin was a key selling point for Gemini Earn, which went live in February 2021. The Gemini Earns webpage had an entire section promoting GUSD and stated that customers could expect to top rates inflation by receiving returns via stablecoins.

Now, Gemini insists it has no obligation to the investors it convinced to buy Gemini dollars and loan them out through Genesis. Last night, December 15, Gemini emailed customers announcing its updated terms and conditions, which seek to retroactively waive users’ rights to sue Gemini or participate in class action lawsuits. (It’s not clear if they can do this). If you are not a [sic] Gemini Customer, by obtaining or using the Gemini Dollar, you agree and understand that obtaining or using the Gemini Dollar does not create or represent any relationship between you and us, the amended text reads.

Demand for Gemini dollars has fallen off a cliff. Since Nov. 9, around the time of the FTX crash, GUSD holders have traded some $250 million of their Gemini dollars for dollars or other cryptocurrencies, according to data from CoinMarketCap.

Everything was so commercialized that GUSD being that safe and stable asset that had individual backing, says Sarah, a Brooklyn-based investor who lent $20,000 worth of GUSD through Gemini Earn starting in January, when Gemini announced the annual return on Gemini Dollar over 8%. I was seeing the yield they were offering for some of their coins, especially the GUSD coin, says Sarah, who asked Forbes to use a pseudonym for fear of backlash from her employer.

The rate of return available on Gemini Dollars was often the highest available for the dozens of tokens available for lending through Gemini Earn, as seen in archived links to the Gemini Earns webpage. Gemini appears to have launched GUSD on its Earn product in June 2021, starting with an annual return of 7.4%, the highest of any coin. That number rose to 8.05% in September, where it remained until April, before falling back to 6.9%, then, somewhat inexplicably, rising again to 7.15% in July. (That same month, Genesis filed a claim for $1.2 billion after losing that money to crypto hedge fund Three Arrows Capital.)

In November, as FTX began to fall apart rapidly, Sarah considered withdrawing her GUSD from Gemini and converting it back into dollars until Gemini persuaded her not to. The company reassured her and other clients in a Nov. 14 email: Gemini has no exposure to FTT tokens or Alameda and no material exposure to FTX. The subject line of the emails said: Gemini is built on trust, security and compliance. Two days later, Gemini announced that all Gemini Earn funds were frozen.

I saw this email and changed my mind about withdrawing funds. I was literally about to take it off, says Sarah, who has no funds in the non-Earn Geminis exchange, which Gemini was apparently referring to crypto deposits. (Winning is not mentioned in the email). They must have known something was going on and they totally misled us saying everything was fine, she said.

Gemini could not be reached for comment on the Nov. 14 email at press time.

A screenshot of the email investors Gemini and Gemini Earn received on November 14, less than 48 hours before Gemini announced that all Earn funds were frozen.

Forbes

Sarah acknowledges, like others who have spoken to Forbes, that she did not necessarily read the fine print of the Gemini Earns terms and conditions, which explained that her Gemini dollars and other tokens loaned to Genesis were not neither insured nor protected. Rather, I was reading the large print they heavily marketed everywhere, she said.

Cameron and Tyler Winklevoss, the twins who founded Gemini in 2014 after pouring millions of dollars from their Facebook legal settlement into bitcoin, were looking to attract more investment into GUSD in the weeks before Gemini Earns’ withdrawal freeze. In late September, Tyler announced a new partnership with MakerDao, a popular decentralized finance app. GUSD holders could pledge their Gemini dollars as collateral in exchange for an equal number of Dai, MakerDao’s native stablecoin that also holds a $1 peg.

A few weeks later, Gemini and MakerDao increased the number of Gemini dollars that could be exchanged for Dai from $60 million to $500 million. A wallet then moved $460 million of GUSD into the MakerDao pool in exchange for Dai, then exchanged those Dai for another stablecoin, then converted those tokens into dollars, according to wallet transactions on Etherscan. Around 84% of all Gemini dollars worth around $590 million are now held in the MakerDao protocol. The initiative supported the market capitalization of GUSD amid client exits.

Natalie Rix, Gemini’s chief communications officer, said in a statement emailed to Forbes: Gemini did not invest $500 million GUSD in the MakerDAO protocol, which third-party market players moved quickly to reach the $500 million limit and all GUSD stablecoins are backed 1-to-1 with US dollars. Gemini did not respond to questions about whether the wallet in question is controlled by the Winklevoss twins or a third-party entity affiliated with Gemini.

As the Winklevii figure out their next move in the crypto winter, Gemini Earn users are starting to lose hope after a month of limited communication. On December 13, the company released a three-word update No Hardware Updates that caused a backlash on Twitter.

We literally bought Geminis parts and now they’re like, sorry, we had nothing to do with it, Zukich says. It just doesn’t make sense.

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