Crypto broker Genesis owes Winklevoss exchange’s customers $900mn

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Dig­i­tal asset trad­ing group Gen­e­sis and its par­ent com­pa­ny Dig­i­tal Cur­ren­cy Group owe cus­tomers of the Win­klevoss twins’ cryp­to exchange $900mn as the col­lapse of FTX rever­ber­ates across the market. 

New York cryp­to exchange Gem­i­ni, run by Tyler and Cameron Win­klevoss, is try­ing to recov­er the funds after Gen­e­sis was wrong­foot­ed by last month’s fail­ure of Sam Bankman-Fried’s FTX cryp­to group, accord­ing to peo­ple famil­iar with the matter.

Gemini’s bid to recov­er the funds under­scores how the cryp­to lend­ing mar­ket, where investors lend out their coins in exchange for high rates of return, sits at the cen­tre of the industry’s cred­it crunch. 

Gen­e­sis is the main part­ner in Gemini’s “earn” pro­gramme, where retail investors lend out 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 suf­fi­cient liq­uid­i­ty to make good on all of its redemp­tion requests. 

Gem­i­ni has now formed a cred­i­tors’ com­mit­tee to recoup the funds from Gen­e­sis and its par­ent DCG, the peo­ple said. Gem­i­ni and Gen­e­sis declined to comment.

Gen­e­sis has been scram­bling to raise fund­ing and has hired invest­ment bank­ing bou­tique Moelis & Co to help it explore all pos­si­ble options, accord­ing to the peo­ple famil­iar with the situation. 

The cred­i­tor com­mit­tee is in nego­ti­a­tions with both Gen­e­sis and DCG, the par­ent group of Gen­e­sis which is run by bil­lion­aire Bar­ry Sil­bert, the peo­ple said. DCG was found­ed in 2015 and is one of the biggest investors in the cryp­to indus­try. It was val­ued at $10bn 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 $2bn worth of out­stand­ing debt, $1.7bn of which is owed to its own sub­sidiary Gen­e­sis through two loans. Over the sum­mer, Gen­e­sis lost $1.1bn on a loan to col­lapsed hedge fund Three Arrows Cap­i­tal. DCG took on Genesis’s lia­bil­i­ties in the process, sub­se­quent­ly owing $1.1bn to Gen­e­sis. Sil­bert told investors last week that DCG had sep­a­rate­ly bor­rowed $575mn from Gen­e­sis “on an arm’s length basis” to fund undis­closed invest­ments and share buy­backs from non-employ­ee shareholders. 

“Because of the way the lia­bil­i­ties are, they’re nego­ti­at­ing togeth­er,” said one per­son famil­iar with the mat­ter about Gen­e­sis and DCG’s approach to creditors.

DCG declined to com­ment. The Finan­cial Times revealed last week that some of DCG’s bor­row­ing was used to fund its invest­ments into anoth­er of its sub­sidiaries, Grayscale.

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