Gemini Bosses Accuse Barry Silbert of Acting in 'Bad Faith' and Demand He Return $900 Million to Customers

Twitter spat between crypto moguls suggests negotiations are not going well.

It's been about six weeks since crypto lender Genesis paused withdrawals on its platform. Genesis was the primary partner for Gemini's Earn program, and the move impacted over 340,000 Gemini Earn users to the tune of $900 million. It's one of many aftershocks caused by the collapse of FTX and Alameda Research.

Gemini bosses Tyler and Cameron Winklevoss are now attempting to recover the money from Genesis and its parent company Digital Currency Group (DCG), run by Barry Silbert. However, it isn't clear if they'll succeed.

Will Gemini Earn customers get their money back?

On its website, Gemini says it has been in "ongoing conversations" with Genesis and DCG. It also formed a committee with other creditors so they could advocate jointly. Unfortunately, if Cameron Winklevoss's open letter to Barry Silbert is anything to go by, the discussions are not going well.

Winklevoss accuses Silbert of "engaging in bad faith stall tactics." He says DCG owes Genesis $1.675 billion, money that it used "to fuel greedy share buybacks, illiquid venture investments, and kamikaze Grayscale NAV trades." The Gemini founder wants Silbert to commit to reaching a solution before Jan. 8.

In turn, Silbert replied that DCG had not borrowed $1.675 billion from Genesis, that it had never missed a payment, and that the next loan maturity was May 2023. "DCG delivered to Genesis and your advisors a proposal on December 29th and has not received any response," he said.

In the meantime, some Gemini Earn users have taken matters into their own hands. At the end of December, a group of investors filed a case against the Winklevoss brothers, accusing them of fraud and selling unregistered securities. More recently, according to Decrypt, another group of Gemini investors have filed a lawsuit against Genesis and DCG.

It is difficult to know whether the Winklevoss-Silbert Twitter spat will help customers recover their assets or what is going on behind the scenes. If the Winklevoss twins can't get Genesis to pay back the money, some Gemini customers want them to make them whole from their own funds. But first we'll have to see what moves Genesis and DCG make and how Gemini's efforts to recover the cash pan out.

In the meantime, one concrete action Gemini Earn customers can take is to put together detailed records of any funds they held. Not only could that help with your taxes, but at some point it may also help you recover your assets.

What about other funds on Gemini?

The cryptocurrency industry is relatively unregulated, and the FTX collapse shows it can be hard to be sure about what platforms are doing with our money. Nonetheless, Gemini has always touted its credentials as a security-first cryptocurrency exchange.

Gemini has already sought to reassure customers in recent months. It says customer funds held on Gemini are "held 1:1 and available for withdrawal at any time" and it won't "do anything with your digital assets unless explicitly authorized and directed to do so by you."

It's important to understand the difference between funds held in different types of Gemini accounts.

• Funds held on Gemini exchange: If you leave your crypto on the Gemini platform, the exchange says it has a number of security measures in place. These include third-party insurance, FDIC insurance on U.S. dollar deposits, and a system of offline cold storage.
• Gemini Earn: Users could earn interest by lending their crypto assets through a third party. These are the funds that are now tied up in the issues with Genesis. Funds in Gemini Earn are not insured.
• Gemini Staking: Staking your crypto is different from lending it. Proof-of-stake cryptos use the staking process to keep their networks secure. They pay rewards to those who participate.

Whatever crypto platform you use, make sure you know how your funds are being held and check the wording in the terms and conditions. For example, crypto lending products often pay higher rates of interest, but these lending-earning products often carry a lot more risk than other forms of crypto storage. Third-party insurance may apply to one product but not another.

Bottom line

The FTX collapse shook the crypto industry to its core, and the dominoes are still falling. Gemini did not have direct exposure to FTX or Alameda Research, but it turns out one of its partners did. Unfortunately, there's a huge amount of interconnectedness between these platforms. Even an exchange that says security is a cornerstone of its operations hasn't been able to insulate itself.

As a crypto investor, if you keep your assets on the exchange where you bought them, they could be at risk. If the platform fails or freezes withdrawals, you could find you can't access your crypto and your money could get tied up in bankruptcy proceedings. One way to avoid this is to move your funds to a non-custodial crypto wallet that you control.

Crypto wallets carry their own risks and are not as user-friendly. For example, if you forget your security information there's no easy way to recover it and you could lose access to your funds. But as crypto contagion sweeps through the industry, there are big advantages to being in complete control of your funds.