Gemini and The Winklevoss Twins Are Facing a Big Mess

Fortune | Will Daniel | Jan 5, 2023

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Another victim of the Crypto Winter?

  • Gemini exchange: In an interview with Fortune on the eve of Gemini’s launch, Tyler Winklevoss described how he hoped to lean into regulation in order to make cryptocurrencies accessible to retail investors, while also attracting the institutional crowd.
    • The exchange grew quickly, barring a brief period of turbulence in the 2018 bear market, and the Winklevii became some of the first Bitcoin billionaires during Gemini’s rise.
  • [Early 2021], the Winklevii had launched Gemini’s Earn platform. The crypto lending service offered juicy returns of “up to 7.4%” for depositing crypto, promising that customers could redeem their funds “at any time.” By comparison, the average savings account in the U.S. offers just a 0.2% return today.
  • The problem for Gemini:  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 Silbert’s Digital Currency Group. Gemini lent users’ funds to Genesis, which in turn loaned them out to institutional borrowers.
    • But when prices for cryptocurrencies tanked in 2022, it was a whole new world for Gemini and the Winklevii, and Gemini Earn users were particularly at risk. By June, Gemini was forced to slash 10% of its workforce. And just months later, reports surfaced that the firm would need to raise at least $1 billion to stave off bankruptcy for its Gemini Earn platform.
    • The issue was made even worse when Genesis decided to stop issuing redemptions to clients such as Gemini after the collapse of FTX—which meant that Gemini didn’t have the money to pay returns or redeem funds on their Earn platform.

See:  Overview of Some Popular Layer 1 Blockchains

  • Letter to former friend:  In an open letter to Silbert this week, Cameron Winklevoss said that over 340,000 users have more than $900 million in crypto trapped at Silbert’s Genesis Global Capital, and in total Silbert’s companies owe Gemini $1.675 billion. He argued that Silbert was engaging in “bad faith stall tactics” to avoid paying back customers.
    • “The idea in your head that you can quietly hide in your ivory tower and that this will all just magically go away, or that this is someone else’s problem, is pure fantasy,” he wrote.
  • Now, Gemini’s Earn users are suing Silbert and the Winklevoss twins, alleging that Silbert breached his contract by pausing redemptions, and the Winklevii sold interest-bearing accounts without properly registering them as securities.  The Commodity Futures Trading Commission (CFTC) also filed a suit against the twins for misrepresenting the way their exchange and futures contracts operated back in 2017 when they sought regulatory approval.

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