(Kitco News) - Amid the escalating feud between the cryptocurrency exchange Gemini and the Digital Currency Group (DCG) venture capital firm, DCG CEO Barry Silbert has released a letter to shareholders updating them on the latest developments.
Yesterday, Gemini co-founder Cameron Winklevoss posted an open letter on Twitter calling for the board of DCG to dismiss Silbert as its CEO for being “unfit” to run the company. Silbert pushed back against this assertion in his letter and called on his “peers in the trenches” to focus on collaboration, treat others with respect, and “get back to having fun and making a dent in the universe.”
Silbert also used the letter to dig deeper into the weeds regarding the developments with Genesis and put a little distance between himself and the day-to-day operations of the crypto lender.
“Every aspect of each subsidiary’s day-to-day business is directed by the respective subsidiary’s leadership team,” Silbert said in a Q&A section of the letter. “To be abundantly clear, DCG does not direct any trades, loans, or borrows for Genesis’ business.”
At the center of the dispute between Winklevoss and Silbert is a $1.1 billion promissory note issued by DCG to Genesis, which matures in 2033. The promissory note “represents DCG’s assumption of liabilities owing to Genesis from Three Arrows Capital in connection with their default in June 2022,” Silbert wrote. “DCG effectively assumed Genesis’s risk of loss on the Three Arrows Capital loan with no obligation to do so.”
This is where the situation gets complicated as DCG issued the $1.1 billion promissory note to Genesis while also taking out a substantial loan from the crypto lender.
“Like hundreds of other institutional investors, DCG borrowed capital from Genesis Capital, the lending arm of Genesis,” Silbert wrote. “DCG currently owes Genesis Capital (i) $447.5M* in USD and (ii) 4,550 BTC (~$78M), which matures in May 2023. DCG borrowed $500M in USD between January and May 2022 at interest rates of 10%-12%.”
While Silbert attempted to distance himself from the decisions being made at Genesis, a BrokerCheck report from the Financial Industry Regulatory Authority (FINRA) shows that DCG is both a direct and indirect owner of Genesis while Silbert is an indirect owner capable of directing the management or policies of the firm.
The letter from Silbert comes as Federal prosecutors from the Eastern District of New York (EDNY) are investigating transfers of funds between DCG and Genesis and reviewing what the companies told investors about the transactions.
The DCG CEO also sought to put to rest concerns that there was any commingling of cash – as was seen between FTX and Alameda Research. “Each of DCG’s wholly-owned subsidiaries has its own bank accounts, securities accounts, and crypto accounts, and maintains separate books and records,” the letter said.
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| DCG drama: $3.5B HQ wealth management closes, Genesis lays off 30% more staff |
Gemini ends the Earn program
Getting back to the public dispute between Gemini and the DCG, Silbert’s letter made no mention of the funds owed to Gemini and its Earn users.
Following the collapse of FTX in November, Genesis halted all withdrawals from the platform. Gemini Earn had funds invested with Genesis, and the halt to withdrawals has affected the ability for Earn to service withdrawal requests by its users.
This forced Gemini to halt all withdrawals from Earn, and on Tuesday, the exchange sent an email to Earn users saying that the program was officially shutting down.
“We are writing to let you know that Gemini – acting as agent on your behalf – has terminated the Master Loan Agreement (MLA) between you and Genesis Global Capital, LLC (Genesis), effective as of January 8, 2023,” the email seen by Kitco Crypto said. "This officially terminates the Earn Program and requires Genesis to return all assets outstanding in the program. Existing redemption requests are not impacted and continue to await fulfillment by Genesis."
In response, a spokesperson from Genesis said the company does "not agree with everything that Gemini has said" and was "disappointed that Gemini is waging a public media campaign despite ongoing productive private dialogue between the parties."
For now, Earn users are at the mercy of Genesis and DCG as to when they might be able to retrieve their invested funds.
And while Silbert’s letter makes it seem like everything is fine at the DCG and Genesis, the Dutch-based cryptocurrency exchange Bitvavo would say otherwise as the company announced that it had rejected a counter-proposal from DCG which offered to repay roughly 70% of the outstanding amount owed to the exchange by Genesis.
Bitvavo announced that it rejected the partial debt repayment offer on Tuesday, writing that “As creditors, we do not find the latter acceptable because DCG has sufficient resources available for full repayment.”
The exchange also sought to reassure its users that their funds were safe. “The current situation regarding DCG does not impact Bitvavo's customers, its platform and its services. Bitvavo has guaranteed the outstanding amount and thus assumed the risk on behalf of its customers.
Bitvavo recently pre-funded roughly $290 million worth of assets locked in Genesis for its users, effectively assuming the risk on their behalf. The firm said that it has confidence “that a solution can be found to the satisfaction of all concerned.
