Digital asset trading group Genesis and its parent company Digital Currency Group owed $900 million to customers of the Winklevoss twin cryptocurrency exchanges as the collapse of FTX reverberated throughout the market.
New York-based crypto exchange Gemini, run by Tyler and Cameron Winklevoss, is trying to recoup funds after Genesis fell on its feet after Sam Bankman Freed’s FTX crypto group collapsed last month.
Gemini’s fundraising efforts highlight that the crypto lending market, where investors lend out cryptocurrencies in exchange for high returns, is at the center of the industry’s credit crisis.
Genesis is the main partner of Gemini’s Earnings program. Under this program, retail investors lend out their coins in exchange for a certain stream of earnings. Gemini stopped pulling out of the scheme last month after Genesis said “unprecedented market turmoil” meant it didn’t have enough liquidity to meet all redemption demands.
Gemini has now formed a creditors committee to collect funds from Genesis and its parent company DCG, the people said. Gemini and Genesis declined to comment.
Genesis is busy raising money and has hired investment banking expert Moelis & Co to help explore all possible options, according to people familiar with the matter.
The creditors panel is in talks with both Genesis and DCG, Genesis’ parent company run by billionaire Barry Silbert, the people said. DCG was founded by him in 2015 and he is one of the largest investors in the cryptocurrency industry. The company was valued at his $10 billion last year by investors including Singapore’s sovereign wealth fund GIC, Google’s venture arm CapitalG and SoftBank, whose subsidiaries include his Genesis and investment manager his Grayscale. I have.
DCG itself owes money to its subsidiary, Genesis. These intercompany loans complicate the situation for creditors.
DCG has $2 billion worth of outstanding debt, of which $1.7 billion is owed to its subsidiary Genesis through two loans. This summer, Genesis lost his $1.1 billion in a loan to failed hedge fund Three Arrows Capital. DCG took responsibility for Genesis in the process and subsequently owed Genesis his $1.1 billion debt. Silbert told investors last week that DCG had separately borrowed $575 million from his Genesis “on an arm’s length basis” to raise private investment capital and to finance its own company from non-employee shareholders. He said he bought shares.
“They’re negotiating together because of how the debt is,” said a person familiar with Genesis and DCG’s approach to creditors.
DCG declined to comment. The Financial Times reported last week that some of DCG’s borrowings Used for investment funds to another subsidiary, Grayscale.
