Digital asset trading firm Genesis and its parent company Digital Currency Group owe Winklevoss Twins-owned crypto exchange Gemini US$900mln, and the twins want it back, according to a Financial Times report.
Gemini initially partnered with Genesis for the former’s Earn programme, which gave retail investors the opportunity to earn yield by lending their digital assets to borrowers.
But Genesis found itself shortchanged when the collapse of FTX set off a crisis in the crypto markets, leaving the platform without sufficient liquidity to honour Gemini customers’ redemption requests.
Gemini has formed a creditors’ committee to handle negotiations in an attempt to recover these funds.
The problems don’t end there for Genesis
According to a CoinDesk report, another group of creditors represented by New York law firm Proskauer Rose is also seeking US$900mln, bringing Genesis’ potential liabilities up to US$1.8bn.
A third set of creditors being represented by Kirkland & Ellis has launched a similar action for an undisclosed sum.
Genesis lost over US$1bn when hedge fund Three Arrows Capital collapsed in June, taking a huge loan owed to Genesis with it.
Digital Currency Group took on Genesis’ liabilities, in addition to US$575mln to fund “undisclosed investments and share buybacks from non-employee shareholders,” according to the FT article.
But Digital Currency Group later disclosed that some of the funds borrowed from Genesis went into another of its subsidiaries Grayscale Bitcoin Trust (GBTC).
Solely invested in bitcoin (BTC), GBTC is the world’s largest investment vehicle of its kind, but it has suffered a near-record discount to its net asset value this year, exceeding BTC’s losses by at least 10%.
The complex web of internal lendings and borrowings within Digital Currency Group has shades of FTX and Alameda Research, but the firm has a far longer history as one of the oldest venture funds in crypto.
As one of the primary trading desks for institutional investors, the ramifications are huge should Genesis collapse, but “we have no plans to file bankruptcy imminently,” a Genesis representative recently told reporters.
“Our goal is to resolve the current situation consensually without the need for any bankruptcy filing. Genesis continues to have constructive conversations with creditors,” the representative added.
Other Digital Currency Group portfolio companies include media company CoinDesk and the Foundry bitcoin mining company.