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.