Gemini accuses DCG on multiple fronts, calling for CEO to step down! DCG admits debt suspicions, borrowing plus promissory notes exceeding $1.5 billion.

The cryptocurrency exchange Gemini and institutional lending platform Genesis collaborated on the revenue product Earn, which led to a dispute following the bankruptcy of FTX. Gemini co-founder Cameron Winklevoss once again accused Genesis' parent company DCG CEO Barry Silbert of fraud and called for his resignation. At the same time, in a shareholder letter from DCG founder Barry Silbert, a response to the matter was provided. The following is a summary of both parties' statements:

Recalling Cameron Winklevoss' previous statements: DCG owes Genesis $1.6 billion in debt, maliciously delaying and burdening Gemini users.

Accusations of Fraud Against DCG: Covering up Genesis Truth, Unfillable $1.2 Billion Hole

Gemini co-founder Cameron Winklevoss stated that they are writing to inform the DCG board and over 340,000 Earn users that they have been deceived by Genesis and DCG. Including founder and CEO Barry Silbert, they have covered up Genesis's financial health, trying to make users believe that DCG has absorbed the damage brought by 3AC to Genesis.

Winklevoss stated that Genesis lent $2.36 billion to Three Arrows Capital, which resulted in at least a $1.2 billion funding gap after Three Arrows Capital went bankrupt. Winklevoss believes that Genesis's failure to declare bankruptcy reorganization or fill the $1.2 billion gap was intentional by DCG CEO Barry Silbert.

Winklevoss accuses that since July 2022, DCG and Genesis have been leading lending users and Earn users to believe that DCG has injected $1.2 billion into Genesis, but in reality, there has been no actual capital injection, which cannot help Genesis operate normally.

Genesis Accounting Fraud

Winklevoss stated that senior executives at Genesis once issued a document titled "Gemini Risk Indicator Request" to Gemini employees, in which they found two key misstatements in the "Financial Position per Asset" section.

• It considers DCG's promissory note as a current asset, listed in a subcategory of other assets
• The note is valued at $1.1 billion

Winklevoss stated that current assets should be cash or cash equivalents, something that can be realized within a year, which is far from a ten-year promissory note. An unsecured long-term note is not worth its face value and may be severely discounted upon redemption, he believes it is currently worth only $300 million.

Genesis Merely a Tool to Feed DCG

Winklevoss stated that all of this stems from greed.

Genesis would be willing to let Three Arrows Capital borrow such a large amount with low-quality collateral just to feed DCG. Because Three Arrows Capital spent money on Grayscale's GBTC without hesitation, expanding its assets under management, allowing DCG to earn management fees.

DCG Shareholder Letter: Why Shoulder Genesis Bad Debt

Following the fierce attack on DCG by Gemini, DCG founder Barry Silbert released a letter to shareholders on the 11th, stating that DCG's wholly-owned subsidiaries have their own bank, securities, and crypto accounts, and maintain independent books and records. He also addressed the lending issue with its subsidiary Genesis.

Regarding DCG taking on $1.1 billion in promissory notes for Genesis's 3AC bad debt, Barry stated it was on the advice of legal and financial advisors to let DCG absorb the claim against 3AC. The note will mature in 2032 and cannot be redeemed early, DCG exchanged this note with Genesis for the unsecured loan owed by 3AC.

Barry mentioned that during the default period of 3AC, DCG injected about $340 million in new equity into Genesis to provide additional capital.

Other Lending Relationships Between DCG and Genesis

In addition to the $1.1 billion promissory note, DCG also lent multiple assets to Genesis between 2021-2022, the current debts include:

1. $447.5 million, interest 10-12%, due in May this year
2. 4,550 BTC worth around $78 million, interest 3.85%, due in May this year
3. 14,048 BCH worth about $1.5 million, interest 9%, maturity date unspecified

Regarding these loans, Barry stated that cash is mainly held in DCG's treasury for investment opportunities, and BTC is used to hedge the GBTC long position to maintain market neutrality.

Gemini Earn Program Terminated, Short-term Difficulties for Genesis

After carefully examining the statements and lending relationships of both parties, it is evident that Winklevoss's claims have merit.

In addition to the $1.1 billion promissory note, DCG still owes Genesis about $527 million in assets. Although they intend to help Genesis eliminate bad debt over a 10-year period, they currently cannot provide substantial capital injection in the short term, and the promissory note should not be treated as a current asset.

Furthermore, according to The Block report, due to Gemini's long-standing debt with Genesis, which led to the inability to withdraw funds in the Gemini Earn product, Gemini has terminated the lending agreements with Gemini Earn, marking the end of the Gemini Earn program.

Gemini stated that they will prioritize repaying customer assets and will provide updates on progress every Tuesday and Friday until a solution is reached.