Tyler Winklevoss and Cameron Winklevoss (LR), co-founders of crypto exchange Gemini, on stage at the Bitcoin 2021 convention in Miami, Florida.
Joe Raedle | Getty Images
Cameron Winklevoss, president and co-founder 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 credit dispute with the company, which subsequently it arose collapse of FTX.
The spat stems from a deal Gemini made with Genesis Global Capital, the lending arm of crypto investment firm Genesis Global Trading, a subsidiary of Digital Currency Group. Gemini offered users returns of up to 8% through its Gemini Earn lending product. To generate these returns, Gemini lent users’ funds to Genesis Global Capital, which in turn lent them to institutional borrowers.
A few days after FTX filed for bankruptcy, Gemini paused repayments on its Gemini Earn service as Genesis Global Capital also suspended new loan origination and repayments. 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 around $175 million in funds tied to FTX.
Winklevoss wrote an open letter to Digital Currency Group chief Barry Silbert on Monday, claiming that Silbert has repeatedly refused to meet with the Gemini team to find a solution to the liquidity crisis that customers are facing by Gemini Earn.
According to the letter, Gemini Earn clients owe more than $900 million to Genesis.
“Over the past six weeks, we have done everything within our power to work in good faith and in a cooperative manner to reach an amicable resolution for you to repay the $900 million that you owe and you while helping to maintain your business. Winklevoss said in the letter, which was publicly tweeted Monday.
“We recognize that every restructuring has start-up costs and that sometimes things don’t go as quickly as we would all like. However, it is now clear that you engaged in malicious delaying tactics.”
‘Mixed Beyond’
Winklevoss accused Silbert of hiding behind “lawyers, investment bankers and lawsuits,” adding, “After six weeks, your behavior is not only totally unacceptable, it’s unscrupulous.” He also claimed that the Digital Currency Group and Genesis are “more than commingled.”
“To be clear, this mess is entirely of your own making. Digital Currency Group (DCG) – of which you are the founder and CEO – owes ~1.675 trillion to Genesis (its wholly owned subsidiary),” Winklevoss said.
“This is money Genesis Earn users and other creditors owe. They’ve taken that money — school teachers’ money — to run greedy stock buybacks, illiquid venture investing, and kamikaze grayscale NAV [net asset value] Trades that drove up fee-generating assets under management [assets under management] your trust; all at the expense of creditors and all for your personal benefit.”
In addition to Genesis, Digital Currency Group also owns Grayscale, the embattled digital asset manager. Grayscale faces its own difficulties as its Grayscale Bitcoin Trust trades 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 replied to Winklevoss’ tweet Monday.
“DCG has never missed an interest payment to Genesis and is current on all outstanding loans; the next loan maturity is May 2023,” he added. “DCG submitted a proposal to Genesis and their advisors on December 29 and received no response.”
‘Time is running out’
Despite the fiery exchange, Winklevoss said he wants to reach a resolution to the liquidity crisis by January. 8. “We remain ready and willing to work with you, but time is running out,” he said.
A Gemini spokesman declined to comment further on the matter when contacted by CNBC.
Winklevoss’ allegations against Silbert come as his crypto exchange Gemini faces legal threats from users. A group of investors filed a class action lawsuit against the company, alleging that it sold its interest-bearing Earn accounts without first registering them as securities. Crypto lender BlockFi has been forced to pay the Securities and Exchange Commission and 32 states $100 million in penalties to settle allegations that its retail lending product violated U.S. securities laws.
Three Arrows Capital co-founder Zhu Su also commented on the matter on Tuesday. In a Twitter thread, Su said that Digital Currency Group “taken significant losses over the summer from our bankruptcy” and other firms impacted by the failure of algorithmic stablecoin TerraUSD. Su, whose company filed for bankruptcy after making risky bets across the industry, has been active on Twitter even as lawyers tried to establish his whereabouts, and is reportedly under investigation by US regulators.
Gemini and Genesis are the latest companies to get caught up in the chaotic, tangled contagion that resulted from FTX’s bankruptcy last year.
Evgeny Gaevoy, founder and CEO of crypto market maker Wintermute, said in a November interview that industry contagion is expected to be widespread “because everyone in the crypto space and beyond could be exposed to them in one way or another “. Wintermute itself had committed funds to FTX at levels “within our risk tolerance and not having a material impact on our overall financial condition,” according to a September 11 statement tweet.
— CNBC’s Ari Levy, MacKenzie Sigalos, and Rohan Goswami contributed to this report.