- Cameron Winklevoss and Barry Silbert had a successful partnership called Earn, in which Gemini loaned client money to Genesis for crypto trading.
- The crypto market crash in 2022 caused the Earn model to fail and many crypto investors lost their assets.
- Winklevoss is now blaming Silbert for the loss of $900 million in deposits from his clients and the two entrepreneurs are in a legal battle over the funds.
Cameron Winklevoss and Barry Silbert were both early believers in bitcoin who made a fortune on their investments and built big businesses along the way. For nearly two years, they enjoyed a mutually beneficial partnership that made their customers a lot of money through an offering called Earn. With Earn, Gemini loaned client money to Genesis for placement across various crypto trading desks and borrowers, and as the digital coin markets soared in 2020 and 2021, that capital produced high returns for Genesis and easily paid Earn users their yield, which was very attractive at a time when the Federal Reserve’s benchmark rate was at virtually zero.
Silbert is the founder of Digital Currency Group (DCG), a crypto conglomerate that includes the Grayscale Bitcoin Trust and trading platform Genesis. Winklevoss, along with his brother Tyler, co-founded Gemini, a popular crypto exchange that, unlike many of its peers, is subject to New York banking regulation. Gemini considered Genesis, which is regulated by New York state and the Securities and Exchange Commission, to be the most reliable name in crypto lending.
However, in 2022, the crypto market cratered, and the Earn model fell apart. Cryptocurrencies turned south, borrowers stopped repaying their debts, hedge funds and lenders went under, and activity screeched to a halt. The floodgates opened even wider in November, when FTX spiraled into bankruptcy and customers of the crypto exchange were unable to access billions of dollars in deposits. FTX founder Sam Bankman-Fried was soon arrested on fraud charges, accused of using client funds for trading, lending, venture investments and his lavish lifestyle in the Bahamas.
An industrywide crunch ensued as crypto investors across the board tried to withdraw their assets. Five days after FTX collapsed, Genesis was forced to freeze new lending and suspend redemptions. The contagion was so rapid that both Gemini and Genesis hired experts to guide them through a potential Genesis bankruptcy. All withdrawals on Earn have been paused since November. Gemini’s 340,000 retail clients are angry, and some have come together in class actions against Genesis and Gemini.
Winklevoss places the blame on Silbert’s shoulders, and he’s gone public with his battle to retrieve the $900 million of deposits his clients placed with Genesis. In a letter to Silbert on Jan. 2, Winklevoss said those funds belong to customers including a school teacher, a police officer and “a single mom who lent her son’s education money to you.” Winklevoss said Gemini had been trying for six weeks to engage in a “good faith” manner with Silbert only to be met with “bad faith stall tactics.” Gemini attorneys had attempted to work with Genesis’ team through the Thanksgiving holiday, but found their efforts effectively rebuffed, a source said.
This crypto faceoff between the Winklevoss brothers and Barry Silbert illustrates the depths of the crypto crisis and underscores the risks that were ultimately shouldered by ordinary investors who got caught up in a massively unregulated market. As it stands, hundreds of millions of dollars of customer cash sits in inaccessible limbo as the two crypto entrepreneurs battle over who is responsible.