Digital asset trading group Genesis and its parent company Digital Currency Group owe customers 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 get its money back after Genesis was put on the wrong foot last month by the failure of Sam Bankman-Fried’s FTX crypto group, according to people in the know with the case.
Gemini’s bid to recover the funds underscores how the crypto lending market, where investors lend their coins in exchange for high returns, is central to the industry’s credit crunch.
Genesis is the main partner in Gemini’s earn program, in which private investors lend their coins in exchange for a fixed return. Gemini stopped drawing from the scheme last month after Genesis said “unprecedented market turmoil” meant it didn’t have enough liquidity to meet all of its redemption requests.
Gemini has now formed a creditors’ committee to recover the money from Genesis and its parent company DCG, the people said. Gemini and Genesis declined to comment.
Genesis has made an effort to raise money and has hired investment banker Moelis & Co to explore all possible options, according to those familiar with the situation.
The creditors’ committee is negotiating with both Genesis and DCG, Genesis’ parent group led 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 arm CapitalG and SoftBank, and its subsidiaries include Genesis and investment manager Grayscale.
DCG itself owes money to its subsidiary Genesis; these intercompany loans have complicated the picture for creditors.
DCG has $2 billion of outstanding debt, $1.7 billion of which 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 had separately borrowed $575 million from Genesis “on an arm’s length basis” to fund secret investments and buy back stock from non-employee shareholders.
“Because of the way the liabilities are, they negotiate together,” said a person familiar with the matter regarding Genesis and DCG’s approach to creditors.
DCG declined to comment. The Financial Times revealed last week that some of DCG’s loans were used to fund its investments in one of its other subsidiaries, Grayscale.