Key Takeaways
- If approved by the bankruptcy court, Gemini notes that it expects Earn users to receive 100% of their crypto assets back.
- NYDFS noted that Genesis defaulted on $1 billion in loans from Earn users.
- As per NYDFS, Gemini is also expected to pay a $37 million penalty for multiple compliance failures.
Gemini, the crypto exchange founded by Cameron and Tyler Winklevoss, has struck a major deal to reimburse over $1.1 billion to its Earn customers through the bankruptcy proceedings of Genesis Global Capital. This agreement follows Genesis’ default on about $1 billion in loans from Earn customers, impacting roughly 200,000 individuals, as highlighted by the New York Department of Financial Services (NYDFS).
NYDFS press release also addressed the ‘role of Gemini Liquidity LLC, an unregulated affiliate that reportedly collected significant fees from Gemini customers, potentially impacting Gemini’s financial position’. The press release indicated that, apart from Gemini’s deficiencies regarding Earn, the Department’s investigation unveiled unsafe and unsound practices undertaken by Gemini, which jeopardized the financial stability of the company.
As part of the settlement, Gemini will allocate $40 million to Genesis for its ongoing bankruptcy proceedings and pay an additional $37 million to the NYDFS. Gemini has pledged to ensure that $1.1 billion is available for its Earn customers by the conclusion of Genesis’ bankruptcy proceedings. This commitment represents the full amount of customers’ assets received in-kind, pending approval from the bankruptcy court.
Gemini’s Earn program, which launched in February 2021, allowed customers to lend their cryptocurrency to Genesis and receive interest payments in return. However, Genesis defaulted on loans totaling approximately $1 billion from Earn customers in November 2022, prompting its subsequent bankruptcy filing in January 2023.
The bankruptcy filing came after Genesis suspended withdrawals from its platform in November 2022 amidst market turbulence caused by the collapse of FTX. This suspension affected users of Gemini Earn, a yield-bearing product offered by the Gemini exchange and managed by Genesis.
The prolonged bankruptcy proceedings left customers of the Gemini Earn program unable to access their assets, highlighting the challenges faced by participants in the crypto lending space. In January 2023, Genesis filed for Chapter 11 bankruptcy in the Southern District of New York, listing Gemini as one of its major creditors. Earn, a product designed to enable Gemini customers to earn interest on their cryptocurrency holdings, relied on Genesis for backend services.
