Back And Forth Between Cameron Winklevoss And Barry Silbert Worries Investors

Cameron Winklevoss, President and Co-Founder of digital currency exchange Gemini, recently issued Barry Silbert with a one week ultimatum for the latter to provide approximately $1 billion. Cameron accused the CEO of crypto conglomerate Digital Currency Group (DCG) of undesirable tactics designed to damage his reputation, but insists he wants to resolve a complex lending dispute with the company that arose following the demise of FTX.

What happened?

Cameron Winklevoss released an open letter to Barry Silbert, the CEO of DCG, this past Monday, clarifying his side of an ongoing dispute with DCG and its subsidiary, Genesis Global Trading. Cameron set a short deadline for Silbert to publicly commit to fixing the situation which caused Gemini Earn to suspend withdrawals.

The Winklevoss twin accused Silbert of intentionally ignoring previous attempts to collaborate, insinuating that the DCG CEO hoped the issue would simply disappear if left alone. Moreover, Cameron claims that Silbert agreed to meet to discuss a proposal but did not show up. Winklevoss now demands that Silbert commit to reaching an agreement by January 8th, 2023.

What was in the letter?

Genesis Trading owes Gemini $900 million as a result of its previous partnership with Gemini Earn. The money, according to Cameron, belongs to the depositors associated with Gemini Earn. Cameron also claimed that DCG owes $1.675 billion to Genesis, its own subsidiary. He accused Silbert of knowingly diverting the funds to buy back shares, fund illiquid investments, and increase the NAV (Net Asset Value) of Grayscale funds rather than repaying third-party debt.

Silbert, for one, has denied that DCG borrowed the aforementioned sum specifically. He did not, however, deny that DCG owes Genesis money, and maintains that DCG has met all of its interest payment obligations.

Barry also claims that on December 29th, 2022, DCG delivered a proposal to Genesis but have yet to receive a response. Furthermore, some Grayscale funds have reportedly been trading at a significant discount to their NAV. The Grayscale Ethereum Trust (ETHE), its second biggest, recently traded at a 60% discount to NAV. Meanwhile, the Grayscale Bitcoin Trust (GBTC), traded at a 50% discount to its NAV.

What happens now?

Investors are concerned that the trust funds of Grayscale will be liquidated, potentially sending already vulnerable markets to even lower levels. Su Zhu, Co-Founder of 3AC, even took a shot at Gemini during the holiday season, accusing it of purposefully making it increasingly difficult for users to sue. In the bankruptcy case of 3AC, Genesis Trading has already filed a $1.2 billion claim.

As part of its efforts to resolve the dispute with Genesis, Gemini has formed a group of creditors. It hired Kirkland & Ellis as a law firm and Houlihan Lokey as an investment banker and financial advisor. Additionally, it is very possible that the threats in the letter will be insufficient on their own. Some Gemini Earn users, however, have decided to take matters into their own hands, as the lead plaintiffs have reportedly filed a class action lawsuit against DCG and Genesis, alleging that DCG tried to conceal insolvency details.

In the past, it was reported that DCG discreetly purchased the debt of 3AC to Genesis with a $1.1 billion promissory note due in 2033. Meanwhile, in a separate lawsuit, Gemini is accused of failing to register the interest-bearing accounts of Gemini Earn as securities. Interestingly enough, similar interest-bearing accounts offered by companies such as BlockFi and Voyager were deemed securities by US regulators.