Gemini Exchange Seeks to Retrieve $900 Million from Crypto Lender Genesis

Cryptocurrency exchange Gemini is trying to recover the $900 million it had paid in loan to crypto broker Genesis and its parent company Digital Currency Group (DCG). 

According to a Financial Times report, the Winklevoss twins’ crypto exchange is seeking to retrieve the funds after Genesis was wrongfooted by last month’s failure of Sam Bankman-Fried’s FTX crypto platform. 

Barry Silbert, founder of DCG, told shareholders in a letter last month that the company owes $575 million to Genesis Global Capital, the lending arm of Genesis. The loan, due in May 2023, was used to “fund investment opportunities” and repurchase stock from non-employee shareholders.

The loan was reportedly issued after Digital Currency Group took over Genesis’ exposure from the Three Arrows Capital default. Back in July, Genesis Global Trading CEO Michael Moro said bankrupt 3AC was the large counterparty that failed to meet a large margin call. 

Subsequently, in a series of tweets, Genesis revealed that it has worked with Digital Currency Group to continue to isolate risk. “DCG has assumed certain liabilities of Genesis related to this counterparty to ensure we have the capital to operate and scale our business for the long-term,” Moro said at the time. 

Gemini has now formed a creditors’ committee in a bid to recoup the funds from Genesis and its parent DCG. 

Is Genesis in Trouble?

In the wake of FTX’s collapse, Genesis Global Trading announced that it is temporarily suspending redemptions and new loan originations. In a statement on Twitter, Genesis said the “abnormal withdrawal requests” have exceeded its “current liquidity.”

The company has also hired investment bank Moelis & Company to explore options including a potential bankruptcy, the New York Times reported last month. 

Furthermore, Grayscale, a subsidiary of Digital Currency Group (DCG), has refused to share its proof-of-reserves citing “security concerns.” The move has stirred up speculations about the financial health of the company. 

Despite all the evidence pointing to problems at DCG, Silbert tried to reassure investors in his letter last month, claiming that most of its entities are “operating as usual.” He even said that they are on the pace to generate $800 million in revenue this year on the back of just $25 million raised in primary capital since inception. 

“DCG will continue to be a leading builder of the industry and we are committed to our long-term mission of accelerating the development of a better financial system. We have weathered previous crypto winters and while this one may feel more severe, collectively we will come out of it stronger,” he said at the time.