A wave of bankruptcies across the crypto landscape has led to Gemini, the cryptocurrency exchange founded by the Winklevoss twins, agreeing to pay back more than $1 billion to its customers. As part of a settlement with the New York Department of Financial Services, Gemini will also pay a $37 million fine for “significant failures.” Cameron and Tyler Winklevoss established Gemini in 2014 as a platform for buying, selling, trading, and storing more than 60 cryptocurrencies.

In 2021, the company introduced Gemini Earn, which allowed users to earn interest of up to 7.4% by lending crypto assets to cryptocurrency lender Genesis Global Capital LLC. At its height, the program had about 200,000 members, including 30,000 in New York. However, the Earn program suspended trading during a crypto crash in November 2022. Gemini stated in an unsigned blog post that it had been diligently “worked tirelessly over the past 15 months to advocate for Earn users and seek the return of their assets.” The Domino Effect Genesis initially positioned itself as an “over the counter” Bitcoin trading desk.

Unfortunately for Gemini, Genesis Global Capital declared bankruptcy in January 2023, with an estimated 100,000 creditors and between $1 billion and $10 billion in liabilities. The firm had also been charged by the SEC with illegally selling crypto. Genesis’ bankruptcy left 200,000 Gemini Earn customers unable to access assets valued at $1.1 billion. Genesis’ bankruptcy followed the collapse of Sam Bankman-Fried’s FTX.

At one point, Genesis-affiliated entities had more than $8 billion of outstanding loans to FTX affiliate Alameda. As part of its attempt to return to business, FTX filed claims against Genesis in March 2023 seeking to retrieve more than $2 billion in loan repayments and collateral transfers, as well as more than $1.7 billion in assets withdrawn by various Genesis entities from FTX.com.  Genesis had also been hit hard by the bankruptcy of Three Arrows Capital, which reportedly owed Genesis $1.2 billion at the time of its collapse. Three Arrows’ downfall was spurred by the implosion of Luna and TerraUSD, two stablecoins whose values plummeted to almost zero.

Genesis eventually settled those claims with a payment of $33 million.

By Tom Nawrocki
Feb 29, 2024 00:00
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