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FTX Bankruptcy Caused Chaos in Crypto

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The crypto sector is already tearing itself apart in public three days into the new year, still fallout from the FTX collapse last year.

A behind-the-scenes battle has recently been made public.

This quarrel is one of the ramifications of the former crypto emperor Sam Bankman-Fried’s bankruptcy. It puts three of the industry’s biggest names against each other.

On one side, there are the rich twin brothers Cameron and Tyler Winklevoss, and on the other, there is Barry Silbert, one of the industry’s barons. The former launched the cryptocurrency exchange Gemini, while the latter is the founder and CEO of Digital Currency Group (DCG), the parent company of troubled cryptocurrency lender Genesis.

‘Bad Faith Stall Techniques’

Genesis was Gemini’s partner in a customer-attraction reward program given by the platform. Gemini Earn is the name of this initiative. It’s a high-yield savings program that promises cryptocurrency exchange consumers up to an 8% yearly return on crypto deposits, depending on the assets stored. Genesis serves as Gemini’s major lender under this arrangement.

After the bankruptcy of FTX and its sister company Alameda Research, a hedge fund that also served as a trading platform for institutional investors, everything went downhill. Last November, Genesis did business with FTX and was forced to restrict withdrawals, forcing Gemini to do the same for Earn program participants.

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Genesis owes Gemini’s Earn users $900 million. The two companies have been attempting to resolve the issue for several weeks, but nothing appears to be moving forward. So says Cameron Winklevoss in a Twitter open letter to Silbert. He accuses him of acting in bad faith.

For the past six weeks, we have done everything we can to engage with you in good faith and collaborative manner in order to seek a consensual settlement for you to pay back the $900 million that you owe, while also assisting you in the preservation of your firm,” Cameron Winklevoss wrote. “We recognize that there are startup costs to any restructuring, and things don’t always go as quickly as we would all want.

However, he went on, “it is now evident that you have been participating in bad faith stall tactics.

Cameron argues that Silbert does everything he can to avoid sitting around the table with them to find a way to end the case.

For example, on December 2nd, we stated our conviction that having everyone in a room together as soon as possible will be the most productive road toward reaching a resolution. You agreed but stressed that you would only do so if a proposition was on the table,” Winklevoss claimed.

The 8th of January

However, on December 17th, a proposition was delivered to you. On Christmas Day, December 25th, an updated version of this proposal was given to you. Despite this, you continue to refuse to sit down with us and work out a solution.

He further stated that Silbert will not agree to a timetable with important milestones.

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Every time we ask for tangible participation from you, you hide behind lawyers, investment bankers, and process. Your behavior after six weeks is not only absolutely wrong but also unconscionable,” Winklevoss slammed.

He then blames Silbert for the crisis, citing DCG’s debt to Genesis.

To be clear, this mess is completely your fault,” Winklevoss stated. “Digital Currency Group (DCG) owes Genesis (its fully owned subsidiary) $1.675 billion, of which you are the founder and CEO. This is the amount of money owed by Genesis to Earn users and other creditors. You used schoolteachers’ money to fund selfish share buybacks and illiquid startup ventures.

This is the figure Silbert disclosed with investors in November. It consists of a $575 million loan due in May and a $1.1 billion promissory note due in June 2032, both of which are linked to the failure of hedge fund Three Arrows Capital, or 3AC, which was even before the fall from grace of FTX.

DCG did not borrow $1.675 billion from Genesis,” Silbert said in a Twitter statement. “DCG has never missed an interest payment to Genesis and is up to date on all outstanding loans; the next loan maturity is in May 2023.

He also stated that DCG responded to a Gemini proposal but has yet to hear back.

DCG delivered a proposal to Genesis and your advisors on December 29th and has received no response,” Silbert claimed.

Those comments were quickly dismissed by Winklevoss, who maintained his claims and asked Silbert if he could commit to resolving the dispute by January 8.

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You’re at it again. Stop pretending that you and DCG are innocent bystanders who had nothing to do with this debacle. It’s utterly deceptive,” Winklevoss argued. “How does DCG owe Genesis $1.675 billion if the money was not borrowed?

Will you agree to resolve this by January 8th in a way that treats the $1.1 billion promissory note as $1.1 billion?

The Cryptocurrency Exception

This debate highlights the complexities of the connections between the numerous stakeholders in the fledgling blockchain-powered financial services market. Firms are frequently linked, but typically never divulge these connections, which can be harmful to their clients.

Unsurprisingly, the public spat between these crypto titans received many comments from Twitter users, who noted that the fight once again demonstrated the opacity of the new industry and how firm founders and management utilize their clients’ assets shamelessly, in the aftermath of FTX.

Cameron, the distinction between this and SBF is somewhat evident,” entrepreneur Jeremy Padawer said, referring to Sam Bankman-Fried, also known as SBF in the crypto world. “Instead of fraudulently lending money to yourself, there’s a third party who hasn’t paid back the money? If that’s the case, how much financial, ethical, and criminal liability do you bear as the CEO for the actions of third parties?

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