Crypto Lender Genesis Begins Legal Battle With Gemini Over $689M Withdrawn During Insolvency

Jimmy Aki
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Embattled crypto lender Genesis Global Capital has begun a legal battle with its former business partner, Gemini Exchange. In a newly filed court document, the platform is suing Gemini for making withdrawals well over $689 million during its fight for survival last year.

Preferential Transfers Made Without Considering Other Creditors

In a November 21 court filing, Genesis has petitioned the court for assistance in recovering over $689 million from the Gemini exchange, owned by the Winklevoss Twins, Tyler and Cameron.

Providing reasons behind this decision, the Digital Currency Group (DCG) subsidiary stated that its former business partner intentionally made preferential transfers of the stated amount out of its platform. This was done without considering the potential repercussions on other investors.

Hence, Genesis is seeking the court’s intervention to rectify what it perceives as unfair treatment by the Gemini crypto trading platform.

As alleged by Genesis, most of these withdrawals occurred during the 2022 market turmoil, marked by the collapse of Terraform Labs, leading to a cascading event. Platforms like crypto hedge fund Three Arrows Capital (3AC), which held liquidity on the Terra blockchain, experienced a depletion of funds.

During this challenging period, Gemini made these substantial withdrawals well before the subsequent bankruptcy filing of Genesis Global Capital, which was also impacted by the platforms’ collapse.

According to Genesis, this move by Gemini served as a catalyst for a “run on the bank” event. Furthermore, the exchange then made a formal request for prior loans it made to the Genesis platform asking for the funds to be returned within three months of the notice.

Genesis has since stated that all the events were “avoidable” given the “information and belief” that its business was already “insolvent” due to the broader market crash of the said period.

Year-long Feud Continues Escalating

Genesis played a crucial role in the fledgling Web3 ecosystem. In its multiple years of operation in the crypto landscape, it offered a lending platform for investors and traders to access much-needed liquidity.

Gemini exchange invested in the company, entrusting the storage of investors’ deposits with the crypto lender in exchange for a percentage of the earnings made by its partner’s lending activities.

The intention was to profit from customer deposits, reward them a certain percentage, and retain the balance. However, things went sour following repeated platform collapses in 2022.

Months after the May 2022 collapse of the world’s first algorithmic stablecoin UST and that of its parent protocol, the FTX debacle kicked in, further escalating an already tense relationship between the two digital asset companies.

Gemini sued Genesis’ parent company, DCG, and founder Barry Silbert in July, citing fraud. According to the crypto trading platform, the funds deposited with Genesis were part of its Earn program, and the company urged it to continue the program even though it knew it was insolvent.

“From the beginning, Genesis – acting in concert with defendants and with defendants’ active support and encouragement – induced the Gemini Earn Lenders to lend by touting Genesis’ purportedly robust risk-management practices and a supposedly thorough vetting process of the counterparties to which its re-lent the assets,” the filing said. “Those were lies.”

In response, the DCG said the allegations were “defamatory” at best and more of a “publicity stunt” to gain public piety.

Two months later, Genesis sued its parent company for a $500 million back payment on a series of loans.

Gemini also sued the crypto lender once more for 60 million shares of the Grayscale Bitcoin Trust (GBTC), worth $1.6 billion. The cases are still ongoing.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.