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  • Writer's pictureSteven Pettigrove

Gemini battles Genesis over suspended Earn product

Cameron Winklevoss, co-founder of cryptocurrency exchange, Gemini, posted an open letter addressed to the CEO of Digital Currency Group (DCG), Barry Silbert, on Monday seeking a speedy resolution for 340,000 customers of Gemini's Earn product.

Gemini's Earn product allowed users to earn up to 8% interest yield by lending their crypto-assets to Gemini which on-lent those assets to Genesis, a subsidiary of DCG. Gemini is understood to have lent over US$900 million in customer assets to Genesis. Genesis paused withdrawals on 16 November 2022 after confirming that it had $175 million in exposure to FTX's collapse. Gemini subsequently froze redemptions for its Earn users.

Winklevoss has accused Silbert of stalling in seeking a resolution for Earn customers. He claims that DCG owes Genesis US$1.675 billion which it used to:

fuel greedy share buybacks, illiquid venture investments, and kamikaze Grayscale NAV trades that ballooned the fee-generating AUM of [Grayscale] Trust.

DCG is also the parent company of Grayscale Investments which offers a number of crypto-assets based funds. Grayscale has been battling the SEC seeking to become the first company to issue an exchange traded spot Bitcoin fund in the United States. The market price of Grayscale's crypto-asset based funds have reached new lows against NAV (net asset value) in recent weeks.

Winklevoss has called on Silbert to "publicly commit to work together" to seek a resolution for users by 8 January. Silbert immediately fired back disputing the value of the loan to DCG and asserting that DCG had never missed an interest payment. He also called out Gemini for failing to respond to its offer on 29 December.

A number of Earn users initiated a class action against Gemini and its co-founders, Cameron and Tyler Winklevoss, on 27 December. The action alleges that Gemini mislead investors about the safety of its Earn product and the relationship with Genesis. It also asserts that the Earn product was an unregistered security. The plaintiffs also raise allegations of fraud, negligent misstatement and unjust enrichment, and seek to make the Winklevosses personally liable as control persons and for aiding and abetting fraud.

Almost two months after the collapse of FTX, pressure is heating up on both Gemini and Genesis to seek a resolution which allows Earn customers to recover their assets.

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