Gemini sues Genesis over $1.6B worth of Grayscale Bitcoin Trust shares originally posted as collateral Gemini sues Genesis over $1.6B worth of Grayscale Bitcoin Trust shares originally posted as collateral
The complex web of interactions between Gemini, Genesis, and its parent firm, Digital Currency Group has spawned yet another in a series of high-profile lawsuits.
2 min read
Updated: Oct. 27, 2023 at 6:26 pm UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
Gemini Trust Co. filed suit against troubled digital asset lender Genesis Global Capital on Oct. 27, seeking to recover $1.6 billion in collateral for Gemini customers trapped when Genesis halted withdrawals in November.
The lawsuit filed in bankruptcy court alleges Genesis improperly withheld collateral that was supposed to backstop loans Gemini users made through the exchange’s Earn program.
The collateral pledged under the security agreement consists of more than 30 million shares of the Grayscale Bitcoin Trust (GBTC), which were kept in an account held by Gemini for the benefit of the lenders participating in its Earn program.
This GBTC collateral was intended to secure Genesis’s obligations and liabilities under the master loan agreements governing the Earn loans. Gemini claims Genesis has prevented it from distributing the collateral proceeds to more than 230,000 Earn users.
The dispute stems from a summer meltdown in crypto markets that forced Genesis and other major lending platforms to freeze withdrawals. Genesis, which owes creditors over $3 billion, has disputed Gemini’s claim on the collateral shares.
Thursday’s lawsuit intensifies a high-stakes battle over how losses get distributed across Genesis creditors, the vast majority of whom are Gemini customers. The outcome could significantly impact the terms of any reorganization plan.
Gemini claims it acted as an agent for the Earn users in lending out their crypto. It says it tried to protect them by requiring Genesis to post collateral. Genesis, however, has challenged the validity of Gemini’s foreclosure on some of the shares.
Tangled web
The relationship between cryptocurrency exchange Gemini and troubled digital asset lender Genesis is intertwined with their common owner, Barry Silbert‘s Digital Currency Group (DCG). Gemini offered an Earn program in partnership with Genesis, allowing customers to lend crypto to Genesis and earn interest.
However, when crypto markets crashed in 2022, Genesis halted withdrawals on Earn, leaving Gemini customers unable to access $900 million in funds. Gemini has since sued Genesis and DCG, alleging they misled investors about Genesis’s shaky finances tied to failed hedge fund Three Arrows Capital.
DCG has denied involvement in Earn, but Gemini contends DCG knew of and hid Genesis’s insolvency.
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Jacob Oliver
Jacob Oliver is a recovering academic and English teacher turned crypto journalist and web3 writer. He holds a Ph.D. from the University of Washington.
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In this article
Bitcoin, a decentralized currency that defies the sway of central banks or administrators, transacts electronically, circumventing intermediaries via a peer-to-peer network.
Gemini
Gemini is a regulated digital asset exchange and custodian that allows customers to buy, sell, store, and stake digital assets in a regulated, secure, and compliant manner.
Genesis
Genesis is an institutional digital asset markets and a full-service digital currency prime brokerage providing a single point of access for select qualified individuals and global institutional investors.
Digital Currency Group
Digital Currency Group’s mission is to accelerate the development of a better financial system.
Grayscale Investments
Established in 2013 by Digital Currency Group, Grayscale Investments is a trusted authority on digital currency investing and cryptocurrency asset management.
Three Arrows Capital
Three Arrows Capital (3AC), a Singapore-based crypto hedge fund, collapsed due to poor risk management, recklessness in dealing with business partners and a significant portion of greed.
