In a move that further intensifies the ongoing rift between prominent crypto enterprises, the Winklevoss-led Gemini Trust Co. has taken legal action against Genesis and its parent entity, Digital Currency Group (DCG). The bone of contention? A staggering $1.6 billion in Grayscale Bitcoin Trust (GBTC) shares. As both entities lock horns, the crypto community watches with bated breath, considering the significant impact this dispute could have on the market.
The underlying disagreement: Gemini earn program and loan practices
Gemini’s primary allegation roots back to a program called “Gemini Earn.” Here, Gemini users had the option to lend their digital assets to Genesis Global via a tri-party contract. This lending mechanism was designed to allow Genesis to use the pooled capital from the Gemini Earn program to provide loans to larger organizations. In return, Genesis was expected to give back a fraction of the funds as profit to Gemini.
However, a glaring issue arose when a large portion of the loans disbursed by Genesis was discovered to be high-risk. These loans were primarily underscored with third-party firms such as Alameda Research, the sister trading entity to FTX. Such high-risk lending practices raised concerns over the security and return of the lent assets.
A crucial point in the Gemini-Genesis agreement was the collateral aspect. Genesis had secured around 60 million shares of the Grayscale Bitcoin Trust (GBTC) as collateral for the Earn product users. With the recent fallout between the two giants, Gemini is now making moves to take control of the said GBTC shares, valued at an eye-watering $1.6 billion.
Gemini’s recent legal filing specifically demands a judgment wherein Genesis would be stripped of any control over the GBTC shares. Gemini’s rationale is rooted in the prevention of these shares being used to settle any of Genesis’ debts during its bankruptcy procedures.
DCG’s offer: A potential resolution?
In a bid to find some middle ground and resolve the escalating tension, DCG, the parent company of Genesis, had presented a compensation plan. This plan promised to deliver full compensation to all affected retail creditors, potentially putting an end to several months of uncertainty and anxiety for many stakeholders.
The specifics of DCG’s proposal promised a baseline recovery rate of 70-90% for unsecured creditors. Moreover, for users of the Gemini Earn program, the recovery rate was hinted to be considerably higher. The higher rate for Earn users could be a move to prioritize and appease the most affected parties in the dispute.
Yet, in a twist, the company outrightly rejected this proposal, labeling it as “misleading.” According to the firm, the terms and conditions laid out by DCG do not wholly serve the best interests of the affected parties, especially considering the gravity of the sums involved.
As Gemini and Genesis continue their legal feud, the future of the $1.6 billion Grayscale Bitcoin Trust shares hangs in the balance. This dispute not only affects the two firms but also sends ripples across the crypto community, given the magnitude of funds and the reputation of the entities involved. The current scenario demands an urgent resolution, both for the sake of the direct stakeholders and for the larger health of the cryptocurrency ecosystem.