Oscar Ramos, a YouTuber, discovered a deal that seemed too good to be true earlier this year: Gemini Earn, a cryptocurrency exchange Gemini’s interest-bearing program, stated that its users could earn an annual return of 8% on ApeCoin, the native cryptocurrency issued by Bored Ape Yacht Club in March.
Ramos consented to allow Gemini Earn to borrow his monkey-themed coins, which he had acquired in order to purchase a Bored Ape NFT. He made an account, and it was great. Gemini was so simple that he really liked it, he says.
It was reported on Saturday, Ramos’ funds—a few thousand dollars—now form a portion of the $900 million that Gemini Earn’s clients are owed.
On November 16, Gemini announced that Genesis Global Capital, the crypto lender with whom it had partnered to earn interest for Gemini Earn users, was suspending customer fund withdrawals. Genesis, which lost approximately $1.1 billion to Three Arrows Capital, a crypto hedge fund that went bankrupt over the summer, halted all loan-making last month in the aftermath of the collapse of Sam Bankman-Fried’s crypto exchange FTX and hedge fund Alameda Research, both of which filed for bankruptcy on November 11.
Gemini, which Tyler and Cameron Winklevoss cofounded and run together in 2014, has built a reputation as a safe, U.S.-based alternative to cryptocurrency’s offshore exchanges. Customers at Gemini are outraged to learn that their money, like the funds of FTX users, appears to have vanished.
JWeb.eth, who doubts he’ll ever see any of his $77,000 again, claims that since the November 16 communication, neither the Winklevoss twins nor Gemini’s support staff have said a word about whether users of Gemini Earn will ever receive their money back. He basically thinking that he is never going to see a penny of that, he says.
Another user, Daniel Ball, tweeted that they had deposited their Gemini Dollars, a stablecoin designed to maintain its value, into the Gemini Earn program. He claimed that Gemini markets itself as being very secure and trustworthy but that in the terms they bury the fact that your assets are not as secure as you think.
Cameron Winklevoss, the CEO of Gemini, revealed on Twitter on Monday that the company had hired the prestigious law firm Kirkland & Ellis and formed a creditors’ committee to try to recover the money that customers had lost. Winklevoss declared, Returning customers fund is their highest priority and they are moving with the utmost urgency.
In response, Robert Smith, a user on Gemini Earn, tweeted that the Winklevoss twins should have been aware that Genesis, their lending partner, was in serious trouble following the bankruptcy of Three Arrows Capital in July. Smith said, There was no attempt to warn them.
Digital Currency Group, led by crypto mogul Barry Silbert, owes its subsidiary Genesis nearly $1.7 billion in two separate loans, including the $1.1 billion Genesis lost to Three Arrows Capital in July; DCG later assumed that debt.
Gemini wrote on November 16, their understanding is that Genesis suspended withdrawals due to a liquidity issue caused by a liquidity duration mismatch between Genesis’ assets and liabilities.
Gemini Earn, which debuted in early 2021, was part of a wave of crypto lending companies that included BlockFi, Voyager Digital, and Celsius; it promised customers annual returns of “up to 7.4%” on their crypto deposits.
Tyler Winklevoss boasted in the original press release for Gemini Earn, they designed a program that allows their customers to generate a real return without having to sell one of the best performing asset classes of the decade.
However, Gemini quickly expanded Earn to allow users to earn interest on more unusual assets. In May 2021, Gemini announced that users could earn returns on their Dogecoin, the meme cryptocurrency that skyrocketed due to speculative interest fueled by Elon Musk’s tweets. “Does the individual believe doge is money?” Then it is,” Noah Perlman, Gemini’s chief operating officer at the time, told. When you compare our rates to what you can get in a traditional money market or CD, they’re up to 100 times higher, he added.
Gemini Earn offered interest-bearing products on 51 different tokens prior to last month’s freeze, including up to 5% annual interest on SolanaSOL, the cryptocurrency in which Sam Bankman-Fried was an early investor (which has since been deleted). Gemini marketed itself as “one of the safest cryptocurrency exchanges where you can buy, sell, store, and earn interest” on cryptocurrencies on that website.
For the Winklevii, the 6’5″ former Olympic twin rowers who famously sued Mark Zuckerberg for allegedly stealing their concept for Facebook and later converted the $65 million in Facebook stock they received as part of a settlement into a Bitcoin fortune, it’s all been a major letdown. The Winklevoss twins toured the country with their cover band, Mars Junction, last summer as trouble was developing in the cryptocurrency markets; one critic compared their act to rich guys doing bad cruise ship karaoke.
In a $400 million fundraising round in November 2021, private investors valued Gemini at $7.1 billion, in part due to the exchange’s pledge to offer yield-hungry investors interest-bearing crypto products. Gemini Earn had lent out $4 billion of its customers’ cryptocurrency as of that point. It’s unclear if Genesis is liable for more than the reported $900 million in losses, or if the size of Gemini Earn’s loan book has changed since that time.
The twins and/or creditors’ actions will be the key factor to watch, according to Daniel Kim of Singapore-based cryptocurrency investment firm FBG Capital in an email. He continued, mentioning Bitfinex, the sister company of stablecoin issuer Tether, which paid off a $550 million loan to Tether last year, asking If the twins can’t get anywhere with Genesis, will they attempt to cover some/all of the debt themselves or give up equity like what Bitfinex did?
Cameron and Tyler Winklevoss would have to sell either their Gemini equity or their personal cryptocurrency holdings if they were to use their own money to help their customers. Neither choice is desirable. Any equity sale by Gemini would probably carry a significant markdown over its previous fundraising round, which took place at the height of last year’s crypto frenzy. The two’s combined estimated holdings of 56,000 bitcoins are currently valued at about $950 million, which is slightly more than what Gemini Earn’s users are allegedly owed and a small portion of the $3.8 billion those tokens were worth a year ago.
Customers of Gemini have already begun to demand payment from the Winklevii. In response to Cameron Winklevoss, one user tweeted, they should open up their own wallet. Please fix this so that millions of lives aren’t ruined.
