Gemini sues Genesis over $1.6B worth of Grayscale Bitcoin Trust shares originally posted as collateral

Stop scaring users with your bad KYC flows

Gemini Trust Co. filed swimsuit in opposition to troubled digital asset lender Genesis International Capital on Oct. 27, in search of to recover $1.6 billion in collateral for Gemini clients trapped when Genesis halted withdrawals in November.

The lawsuit filed in chapter courtroom alleges Genesis improperly withheld collateral that was imagined to backstop loans Gemini customers made by way of the alternate’s Earn program.

The collateral pledged underneath the safety settlement consists of greater than 30 million shares of the Grayscale Bitcoin Trust (GBTC), which had been saved in an account held by Gemini for the profit of the lenders taking part in its Earn program.

This GBTC collateral was supposed to safe Genesis’s obligations and liabilities underneath the grasp mortgage agreements governing the Earn loans. Gemini claims Genesis has prevented it from distributing the collateral proceeds to greater than 230,000 Earn customers.

The dispute stems from a summer time meltdown in crypto markets that compelled Genesis and different main lending platforms to freeze withdrawals. Genesis, which owes collectors over $3 billion, has disputed Gemini’s declare on the collateral shares.

Thursday’s lawsuit intensifies a high-stakes battle over how losses get distributed throughout Genesis collectors, the overwhelming majority of whom are Gemini clients. The result might considerably influence the phrases of any reorganization plan.

Gemini claims it acted as an agent for the Earn customers in lending out their crypto. It says it tried to guard them by requiring Genesis to put up collateral. Genesis, nonetheless, has challenged the validity of Gemini’s foreclosures on some of the shares.

Tangled net

The connection between cryptocurrency alternate Gemini and troubled digital asset lender Genesis is intertwined with their widespread proprietor, Barry Silbert‘s Digital Currency Group (DCG). Gemini offered an Earn program in partnership with Genesis, allowing customers to lend crypto to Genesis and earn interest.

However, when crypto markets crashed in 2022, Genesis halted withdrawals on Earn, leaving Gemini customers unable to access $900 million in funds. Gemini has since sued Genesis and DCG, alleging they misled investors about Genesis’s shaky funds tied to failed hedge fund Three Arrows Capital.

DCG has denied involvement in Earn, however Gemini contends DCG knew of and hid Genesis’s insolvency.

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