Genesis’ Cameron Winklevoss and DCG’s Barry Silbert argue over frozen funds

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Tyler Winklevoss and Cameron Winklevoss (LR), co-founders of crypto exchange Gemini, on stage at the 2021 Bitcoin Convention in Miami, Florida.

Joe Raedle | Getty Images

Cameron Winklevoss, co-founder and chairman of digital currency exchange Gemini, has accused the head of crypto conglomerate Digital Currency Group of engaging in “bad faith” tactics, but insists he wants to resolve a complex loan dispute with the company that emerged in the wake of FTX’s collapse.

The spat stems from a pact between Gemini and Genesis Global Capital, the lending arm of crypto investment firm Genesis Global Trading, a subsidiary of Digital Currency Group. Gemini has offered users returns of up to 8% through its Gemini Earn loan product. To generate these returns, Gemini loaned user funds to Genesis Global Capital, which in turn loaned them to institutional borrowers.

Days after FTX filed for bankruptcy, Gemini suspended redemptions from its Gemini Earn service, with Genesis Global Capital also suspending new lending and redemptions. Gemini has denied any exposure to Sam Bankman-Fried’s crypto empire, but Genesis said in a Nov. 10 tweet that its derivatives business has about $175 million in funds locked up in FTX.

Winklevoss wrote an open letter to Digital Currency Group boss Barry Silbert on Monday, alleging that Silbert has refused to meet with the Gemini team on multiple occasions to find a solution to the liquidity crunch facing Gemini Earn clients.

According to the letter, Gemini Earn customers owe Genesis more than $900 million.

“Over the past six weeks, we have done everything we can to engage with you in good faith and collaboratively to reach a consensual resolution for you to repay the $900 million you owe, while helping you to preserve your business,” Winklevoss said in the letter, which was tweeted publicly on Monday.

“We understand that there are start-up costs to any restructuring, and sometimes things don’t go as fast as we would like. However, it is now becoming clear that you have engaged in stall tactics in bad faith. “

“Beyond the Mix”

Winklevoss accused Silbert of hiding behind “lawyers, investment bankers and processes”, adding: “After six weeks, your behavior is not only completely unacceptable, it is unconscionable.” He also alleged that Digital Currency Group and Genesis are “beyond the mix”.

Digital Currency Group owes Genesis $1.675 billion. Debts consist of $575 million in debt due May 2023 and a $1.1 billion promissory note issued by Genesis to Three Arrows Capital, which Digital Currency Group absorbed following the controversial collapse of the crypto hedge fund.

“To be clear, this mess is all your doing. Digital Currency Group (DCG) of which you are the founder and CEO owes Genesis (its wholly owned subsidiary) about $1.675 billion,” Winklevoss said.

“This is money that Genesis owes Earn users and other creditors. You took this money along with teachers’ money to fuel greedy stock buybacks, illiquid venture capital investments and Kamikaze Grayscale NAV [net asset value] transactions that inflated the AUM generating fees [assets under management] your Trust; all at the expense of creditors and all for your own personal gain.”

In addition to Genesis, Digital Currency Group also owns Grayscale, the struggling digital asset manager. Grayscale faces its own challenges, with its Grayscale Bitcoin Trust trading at a 45% discount to the price of its underlying asset, even as bitcoin trades at multi-year lows.

“DCG did not borrow $1.675 billion from Genesis,” Silbert said in response to Winklevoss’ tweet on Monday.

“DCG has never missed an interest payment to Genesis and is current on all outstanding loans; the next loan due date is May 2023,” he added. “DCG provided Genesis and your advisors with a proposal on December 29 and received no response.”

“Hurry up”

Despite the heated exchange, Winklevoss said he wanted to reach a solution to the liquidity crisis by Sunday. “We remain ready and willing to work with you, but time is running out,” he said.

A spokesperson for Gemini declined to comment further on the matter when contacted by CNBC.

Winklevoss’ accusations against Silbert come as his crypto exchange Gemini faces legal threats from users. A group of investors has filed a class action lawsuit against the company, alleging that it sold its interest-earning accounts without first registering them as securities. Crypto lender BlockFi was forced to pay the Securities and Exchange Commission and 32 states $100 million in penalties to settle charges that its retail lending product violated US securities laws.

Three Arrows Capital co-founder Zhu Su also weighed in on the matter on Tuesday. In a Twitter thread, Su said that Digital Currency Group “suffered substantial losses this summer from our bankruptcy” and other companies affected by the failure of algorithmic stablecoin terraUSD. Su, whose company collapsed into insolvency after making risky bets in the industry, has been active on Twitter even as lawyers seek his whereabouts, and he is said to have been the subject of investigations by US regulators.

Gemini and Genesis are the latest companies to be caught up in the messy and tangled contagion resulting from the collapse of FTX last year.

Evgeny Gaevoy, founder and CEO of crypto market maker Wintermute, said in a November interview that industry contagion should be widespread “because anyone in the crypto space and beyond crypto would have could have been exposed to it in one way or another”. Wintermute itself had funds trapped in FTX, the amount of which was “within our risk tolerances and does not materially impact our overall financial position,” according to a Nov. 9 tweet.

CNBC’s Ari Levy, MacKenzie Sigalos and Rohan Goswami contributed to this report.

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