Cameron Winklevoss, co-founder and president of digital foreign money trade Gemini, accused the pinnacle of crypto conglomerate Digital Forex Group of participating in “bad faith” techniques however insists he desires to resolve a posh lending dispute with the corporate that emerged within the wake of FTX’s collapse.
The spat arises from a pact Gemini has with Genesis World Capital, the lending arm of crypto funding agency Genesis World Buying and selling, a subsidiary of Digital Forex Group. Gemini provided customers yields as excessive as 8% through its lending product Gemini Earn. To generate these returns, Gemini lent customers’ funds to Genesis World Capital, which in flip loaned them out to institutional debtors.
A number of days after FTX filed for chapter, Gemini paused redemptions for its Gemini Earn service as Genesis World Capital additionally suspended new mortgage originations and redemptions. Gemini has denied any publicity to Sam Bankman-Fried’s crypto empire, however Genesis stated in a Nov. 10 tweet that its derivatives enterprise has roughly $175 million in funds locked inside FTX.
Winklevoss on Monday penned an open letter to Digital Forex Group boss Barry Silbert, alleging Silbert refused to satisfy with the Gemini staff on a number of events to discover a decision to the liquidity disaster dealing with purchasers of Gemini Earn.
In response to the letter, Gemini Earn purchasers are owed greater than $900 million from Genesis.
“For the past six weeks, we have done everything we can to engage with you in a good faith and collaborative manner in order to reach a consensual resolution for you to pay back the $900 million that you owe, while helping you preserve your business,” Winklevoss stated within the letter, which was tweeted publicly Monday.
“We appreciate that there are startup costs to any restructuring, and at times things don’t go as fast as we would all like. However, it is now becoming clear that you have been engaging in bad faith stall tactics.”
Winklevoss accused Silbert of hiding behind behind “lawyers, investment bankers, and process,” including, “After six weeks, your behavior is not only completely unacceptable, it is unconscionable.” He additionally alleged that Digital Forex Group and Genesis are “beyond commingled.”
Digital Forex Group owes Genesis $1.675 billion. The debts consist of a $575 million liability due in May 2023, and a $1.1 billion promissory note Genesis issued to Three Arrows Capital, which Digital Currency Group absorbed following the controversial crypto hedge fund’s collapse.
“To be clear, this mess is entirely of your own making. Digital Currency Group (DCG) — of which you are the founder and CEO — owes Genesis (its wholly owned subsidiary) ~1.675 billion,” Winklevoss said.
“This is money that Genesis owes to Earn users and other creditors. You took this money — the money of schoolteachers — to fuel greedy share buybacks, illiquid venture investments, and kamikaze Grayscale NAV [net asset value] trades that ballooned the fee-generating AUM [assets under management] of 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 embattled digital asset manager. Grayscale is facing difficulties of its own, with its Grayscale Bitcoin Trust trading at a 45% discount to the price of its underlying asset even as bitcoin trades at multiyear lows.
“DCG did not borrow $1.675 billion from Genesis,” Silbert said in reply to Winklevoss’ tweet Monday.
“DCG has never missed an interest payment to Genesis and is current on all loans outstanding; next loan maturity is May 2023,” he added. “DCG delivered to Genesis and your advisors a proposal on December 29th and has not received any response.”
‘Time is running out’
Despite the fiery exchange, Winklevoss said he wants to reach a solution to the liquidity crunch by Sunday. “We remain ready and willing to work with you, but time is running out,” he said.
Spokespeople for Gemini and Digital Currency Group declined to comment further on the matter when contacted by CNBC.
The accusations from Winklevoss 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 it sold its Earn interest-bearing 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 U.S. securities laws.
Three Arrows Capital co-founder Zhu Su also weighed in on the matter Tuesday. In a Twitter thread, Su said that Digital Currency Group “took substantial losses in the summer from our bankruptcy” and other firms impacted by the failure of algorithmic stablecoin terraUSD. Su, whose company collapsed into insolvency after making risky bets across the industry, has been active on Twitter even as lawyers seek to establish his whereabouts, and he reportedly faces investigations from U.S. regulators.
Gemini and Genesis are the latest firms to get caught up in the messy, entangled contagion resulting from FTX’s fall into 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 anyone in the crypto space and beyond crypto could have been exposed to them one way or another.” Wintermute itself had funds trapped in FTX, the amount of which was “within our risk tolerances and does not have a significant impact on our overall financial position,” according to a Nov. 9 tweet.
— CNBC’s Ari Levy, MacKenzie Sigalos and Rohan Goswami contributed to this report.