Digital asset trading group Genesis and its parent company Digital Currency Group owe clients of the Winklevoss twins’ crypto exchange $900 million as the collapse of FTX reverberates across the market.
New York crypto exchange Gemini, run by Tyler and Cameron Winklevoss, is trying to recoup the funds after Genesis was misled by last month’s failure of Sam Bankman-Fried’s FTX crypto group, according to people familiar with the matter. is with the case.
Gemini’s attempt to get the funds back highlights how the crypto-lending market, where investors lend their coins in exchange for high rates of return, is at the center of the industry’s credit crunch.
Genesis is the main partner in Gemini’s “earn” program, where retail investors lend their coins in exchange for a fixed stream of returns. Gemini halted withdrawals from the scheme last month after Genesis said “unprecedented market turmoil” meant it did not have enough liquidity to meet all its redemption requests.
Twins has now formed a creditors’ committee to recover the funds from Genesis and its parent DCG, the people said. Gemini and Genesis declined to comment.
Genesis has been scrambling to raise financing and has hired investment banking boutique Moelis & Co to help it explore all possible options, according to the people familiar with the situation.
The creditors’ committee is in negotiations with both Genesis and DCG, the parent group of Genesis run by billionaire Barry Silbert, the people said. Founded in 2015, DCG is one of the largest investors in the crypto industry. It was valued at $10 billion last year by investors including Singapore’s sovereign wealth fund GIC, Google’s venture group CapitalG and SoftBank, and its subsidiaries include Genesis and investment manager Grayscale.
DCG itself owes money to its subsidiary Genesis; these intercompany loans complicated the picture for creditors.
DCG has $2 billion in outstanding debt, of which $1.7 billion is owed to its own subsidiary Genesis through two loans. Over the summer, Genesis lost $1.1 billion on a loan to collapsed hedge fund Three Arrows Capital. DCG assumed Genesis’ obligations in the process and subsequently owed Genesis $1.1 billion. Silbert told investors last week that DCG separately borrowed $575 million from Genesis “on an arm’s length basis” to fund undisclosed investments and share buybacks from non-employee shareholders.
“Because of the way the obligations are, they are negotiating together,” said one person familiar with the matter about Genesis and DCG’s approach to creditors.
DCG did not respond to requests for comment. The Financial Times revealed last week that some of DCG’s loans were used to finance its investments in another of its subsidiaries, Grayscale.