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Gemini Founders Seek Path To Recover Funds

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Gemini co-founder Cameron Winklevoss has said that the global investment bank Houlihan Lokey has structured a plan on behalf of a committee of creditors targeted at resolving the liquidity issues at Genesis and its parent firm, Digital Currency Group (DCG).

On December 3, reports spread that crypto lender Genesis and DCG allegedly owed $900 million to Gemini clients, based on information from the Financial times as reported by people close to the matter.

Winklevoss has also expressed that finding a solution to the liquidity issues would provide a leeway for Gemini clients to recover assets that are owed to them by both Genesis and DCG following the collapse of the giant FTX crypto exchange.

Based on the brief “Earn Update“, which Winklevoss also shared on Twitter, the plan that Houlihan Lokey presented on behalf of the creditor committee “Is based on information received from Genesis, DCG, and their respective advisors to date,” with the Gemini co-founder adding that “The Creditor Committee expects an initial response this week.

Gemini’s Earn Offering

Crypto exchange Gemini, under the leadership of Winklevoss, launched the “Earn” offering in 2021 to be an interest-earning program for customers in the U.S. through a collaboration with Genesis. Gemini CEO Tyler Winklevoss said:

We designed a program that allows our customers the ability to generate a real return on their crypto holdings without having to sell one of the best-performing asset classes of the decade.

As a Trust company regulated by the New York Department of Finance, Gemini positioned the Earn product as the only crypto interest-earning program available across the 50 states in the U.S. Given that Gemini was not the lender or borrower, its partnering firms such as Genesis Global Capital would play a critical role in the provision of the Earn product. In this regard, Gemini chief operating officer Noah Perlman said:

Our vetted institutional lending partners, such as Genesis Global Capital, find these borrowers and lend crypto funds in exchange for an interest payment.

The program would be run as part of the Gemini platform, making it possible for customers to transfer existing crypto holdings or purchase crypto to send to the program dubbed Gemini Earn. The program allows users to earn interest for any period, without the need for any minimum balance.

Upon launch, the Earn program offered investors the opportunity to earn 8% in interest by lending out their cryptocurrencies, including Bitcoin (BTC), Ether (ETH), Litecoin (LTC), Bitcoin Cash (BCH), Zcash (ZEC), and stablecoins, all totaling to 26 assets supported by the platform.

Around the same time as the launch, Perlman said that interest rates for every one of the 26 assets are based on supply and demand within the market for individual asset borrowing. He also added that interest would be compounded and paid on a daily basis, with the earnings being processed in the same crypto as the funds deposited.

 Gemini Earn product launch came shortly after the Gemini exchange went live with a new credit card in mid-January 2021 allowing users to earn crypto rewards on everyday purchases in crypto.

Gemini Earn Paused In The Wake Of FTX Collapse

Nevertheless, Gemini paused the Earn program on November 16 in the wake of its exposure to failed crypto exchange FTX, under the scrupulous leadership of Sam Bankman-Fried, who was arrested in the Bahamas and has since been extradited to the U.S., to face a myriad of charges that may see him spend the rest of his life in prison.

The same day Gemini paused the Earn program, its project partner, Genesis, also halted withdrawals temporarily on grounds of “unprecedented market turmoil.” Notably, this was barely a week after it disclosed that almost $175 million of its funds were held up in an FTX trading account.

The firm also noted that its liquidity at the time was negatively impacted by the collapse of hedge fund Three Arrows Capital (3AC) in June. This was revealed in a November 16 tweet which stated:

The default of 3AC negatively impacted the liquidity and duration profiles of our lending entity Genesis Global Capital. Since then, we have been de-risking the book and shoring up our liquidity profile and the quality of our collateral.

As part of bankruptcy proceedings, the brokerage filed a $1.2-billion claim against the defunct Three Arrows Capital. Nevertheless, Gemini brought in “the best advisors in the industry to explore all possible options.” They also committed to delivering a plan for the lending business the following week, saying “We’re working tirelessly to identify the best solutions for the lending business, including among other things, sourcing new liquidity.”

Meanwhile, the year has not been very smooth running for Gemini, as the crypto exchange had to retrench up to 20% of its staff in 2022, with all its issues seemingly sprouting from the collapse of FTX.

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