From Gemini to Genesis to Barry Silbert: The Winklevoss Twins Are in Trouble With Crypto

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The Winklevior Tyler and Cameron Winklevoss, to use their first names, rose to fame in the mid-2000s when they sued Meta founder and CEO Mark Zuckerberg claiming he stole their idea of ​​Facebook when they were studying together at Harvard. The 6-foot-5 brothers’ story was finally detailed in the 2010 film The Social Network, including the part where Zuckerberg paid them millions to move away.

Rowing fans might recognize the Winklevii for their sixth-place finish in the men’s pairings at the 2008 Beijing Olympics, but in recent years the brothers have been making headlines for a whole new reason: cryptocurrencies. . Early adopters of Bitcoin took advantage of the digital asset boom of the early 2010s before launching a crypto exchange, Gemini, in 2014.

Tyler and Cameron Winklevoss face off on the first day of the Beijing 2008 Olympic Games on August 9.

Jonathan FerreyGetty Images

By the end of 2021, Gemini was on fire and crypto prices were hitting new highs every day, leaving the identical twins with a combined net worth of over $7 billion. Industry analysts claimed the party was just getting started, but after Crypto Winter wiped out more than $2 trillion in value from the fledgling industry, the worm turned its sights on Winklevii.

Now, lawsuits are underway and the brothers are engaged in a very public battle with their former friend, crypto billionaire Barry Silbert, over what will happen to the frozen funds of more than 340,000 users of the Geminis Earn platform.

Facebook saga leads to early adoption

Hundreds of thousands of people around the world have been affected by recent Geminis issues, and none of this would have been possible without Facebook.

By the early 2000s, Cameron and Tyler had left their privileged upbringing in Greenwich, Connecticut. Their father is Howard Winklevoss, a former professor of actuarial science at the legendary Wharton School of Business at the University of Pennsylvania and studied economics in the leafy confines of Harvard. Together with their classmate Divya Narendra, they came up with the idea of ​​a social network called ConnectU to bring university students together and enlisted the help of a sophomore computer science student named Mark Zuckerberg to create their site.

The Winklevii and Narendra alleged that Zuckerberg stole their idea to create Facebook. They sued in 2004 and, after a four-year legal battle, finally settled with Meta’s CEO in a $65 million mediation.

The brothers used their settlement money to invest in dozens of startups through their family office, Winklevoss Capital, and also made a timely investment in what was then a little-known digital token, Bitcoin.

In April 2013, they revealed that they had invested $11 million in Bitcoin when it was trading at just $120. A year later, they launched a cryptocurrency exchange, Gemini, on the back of the investment, and everything was going according to plan until Crypto Winter 2022.

The birth of Gemini

In an interview with Fortune on the eve of the launch of Geminis, Tyler Winklevoss described how he hoped to lean into regulation to make cryptocurrencies accessible to retail investors, while appealing to the institutional crowd.

Wall Streets isn’t into Bitcoin yet, and part of Gemini and the license is to get them there, he explained.

The exchange grew rapidly, barring a brief period of turmoil in the 2018 bear market, and developed a reputation as a secure US-based option for crypto investors. The Winklevii became one of the first Bitcoin billionaires during the rise of Geminis.

But as the pair amassed a fortune as the crypto fervor grew, they also began to look into riskier investments. Gemini launched the NFT Nifty Gateway marketplace in 2018, but the platform soon ran into security issues and was overtaken by competitors before being integrated into Samsung’s NFT platform.

In September 2021, Cameron Winklevoss also spoke to Fortune about onelets call it, a one-time investment in a startup trying to revive woolly mammoths to fight climate change, saying he’s seen the company gain momentum. money through TV commercials or even extinct animal parks, like Jurassic. Park.

Earlier that year, the Winklevii launched their biggest business to date, the Geminis Earn platform. The crypto lending service offered hefty returns of up to 7.4% for depositing crypto, promising customers could redeem their funds at any time. By comparison, the average savings account in the United States today only offers a 0.2% return.

Investors today know that a smart and diverse portfolio includes cryptocurrencies, an investment in their future, Tyler Winklevoss said in a press release at the launch. We have designed a program that allows our clients to generate a real return on their crypto holdings without having to sell one of the best performing asset classes of the decade.

Another victim of Crypto Winter?

The only problem for Gemini was that to deliver high returns to investors, the company had to make relatively (or certainly) risky bets with their crypto clients. It’s not that hard in a bull market, but when prices start falling, finding a stable return can be a challenge.

One of the ways Gemini created these returns was through Genesis Global Capital, the lending arm of crypto investment firm Genesis Global Trading, which is owned by Silberts Digital Currency Group. Gemini lent users funds to Genesis, which in turn lent them to institutional borrowers.

The Winklevii were confident that cryptocurrency prices would continue to rise, allowing them to consistently deliver high returns to clients through this plan. In September 2021, at the height of the crypto boom, Cameron Winklevoss even told Fortune that he thought Bitcoin would end the year at $100,000 (that was under $47,000).

But when cryptocurrency prices plummeted in 2022, it was a whole new world for Gemini and the Winklevii, and Gemini Earn users were particularly at risk. In June, Gemini was forced to cut its workforce by 10%. And a few months later, reports surfaced that the company would need to raise at least $1 billion to avoid bankruptcy for its Gemini Earn platform.

The problem was further compounded when Genesis decided to stop issuing buybacks to clients such as Gemini after the collapse of FTX, which was once the second largest crypto exchange in the world. The decision meant that Gemini did not have the money to pay returns or redeem funds on their Earn platform.

In an open letter to Silbert this week, Cameron Winklevoss said over 340,000 users have over $900 million in crypto trapped in Silberts Genesis Global Capital, and in total, Silberts companies owe Gemini $1.675 billion. He argued that Silbert was engaging in bad faith dropout tactics to avoid reimbursing customers.

The idea in your head that you can quietly hide in your ivory tower and all of this will magically disappear, or that it’s someone else’s problem, is pure fantasy, a- he writes.

Barry Silbert, Founder and CEO of Digital Currency Group

Joe Buglewicz Bloomberg/Getty Images

Silbert responded by saying he had not borrowed $1.675 billion and had never missed an interest payment. And some critics argued that a crash was inevitable due to the unsustainable returns offered by Gemini. BlockFi, another crypto lender that offered high returns to investors, filed for bankruptcy in November amid Crypto Winter and the collapse of FTX.

Still, Cameron Winklevoss said he was trying to return funds to clients, but couldn’t because of Silbert.

Here we go again, he said. Stop trying to pretend that you and DCG are innocent bystanders and had nothing to do with creating this mess. It’s completely hypocritical.

Winklevoss then asked if Silbert would commit to repaying $1.1 billion of what he owes by Jan. 8, but got no response.

Now, Geminis Earn users are suing Silbert and the Winklevoss twins, alleging that Silbert breached his contract by suspending redemptions, and that the Winklevii sold interest-bearing accounts without properly registering them as securities.

The Commodity Futures Trading Commission (CFTC) also sued the twins for misrepresenting the workings of their swaps and futures in 2017 when they sought regulatory approval.

Geminis’ core business, its crypto exchange, is in danger of becoming insignificant in the meantime. The exchanges’ spot trading volume in the past 24 hours was just $32.8 million. In comparison, the world’s leading crypto exchange, Binance, recorded volumes of over $8.3 billion during the same period.

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