The Winklevoss twins’ crypto exchange Gemini is caught up in the implosion of Sam Bankman-Fried’s FTX and Alameda Research.
Cameron (left) and Tyler Winklevoss (right) by Michael Prince for Forbes, Sam Bankman-Fried by Guerin Blask for Forbes
The Winklevoss twins promised “real return” for Gemini users who signed onto their lending program. Now customers are owed $900 million as the contagion that began with the collapse of Sam Bankman-Fried’s FTX crypto exchange spreads further.
Earlier this year, YouTuber Oscar Ramos discovered a deal that seemed too good to be true: Gemini Earn, an interest-bearing program run by crypto exchange Gemini, said that its users could generate annual returns of 8% on ApeCoin, the native cryptocurrency issued by Bored Ape Yacht Club in March.
Ramos agreed to let Gemini Earn lend out his monkey-themed coins, which he’d bought with the intent of buying a Bored Ape NFT. “I created my account and it was fabulous. I really liked Gemini because it was so easy,” he says.
Now, Ramos’ funds–a few thousand dollars–are part of the $900 million that Gemini Earn’s customers are owed, as the Financial Times reported on Saturday (and as a source familiar with the matter confirmed to Forbes.)
Gemini announced on November 16 that Genesis Global Capital, the crypto lender it partnered with to earn interest for Gemini Earn users, was halting fund withdrawals by customers. Genesis, which lost around $1.1 billion to Three Arrows Capital, a crypto hedge fund that went bankrupt over the summer, halted all loan-making last month following the collapse of Sam Bankman-Fried’s crypto exchange FTX and hedge fund Alameda Research, which both filed for bankruptcy on November 11.
Gemini, which brothers Tyler and Cameron Winklevoss cofounded in 2014 and run together, cultivated a reputation as a safe, U.S.-based alternative to crypto’s offshore exchanges. Now Gemini’s customers are furious to discover that their money–like the funds of FTX users–has seemingly gone up in smoke.
One user, JWeb.eth, tweeted out a photo that showed his failed attempt to withdraw $77,000 (of ApeCoin) on November 11–five days before any public statement by Gemini. “We were told on November 16th that there would be an update in the coming days and still no communication,” JWeb.eth said. In a phone interview, JWeb.eth–who asked to remain anonymous–said that he used Gemini Earn because he trusted Gemini’s brand. “The rate they were offering wasn’t absurd, so it didn’t seem like a Ponzi,” he says. “I thought they were a very reputable, safe site.”
Since the November 16 communication, Gemini Earn users haven’t heard a peep from the Winklevoss twins or Gemini’s support staff about whether they’re ever going to get their money back, according to JWeb.eth, who doubts he’ll ever see any of his $77,000 again. “I’m basically operating under the impression I’m never going to see a cent of that,” he says.
“Gemini markets itself as very secure and trustworthy but yet in the terms they bury the fact that your assets are not as secure as you think,” tweeted another user named Daniel Ball, who said they had deposited their Gemini Dollars–a stablecoin designed to retain its value–into the Gemini Earn program.
On Monday, Gemini CEO Cameron Winklevoss announced on Twitter that Gemini had formed a creditors’ committee to try and recoup customers’ lost money and hired white-shoe law firm Kirkland & Ellis. “Returning your funds is our highest priority and we are operating with the utmost urgency,” Winklevoss said. His brother, Tyler, Gemini’s president, retweeted his brother’s posts. Gemini did not respond to Forbes’ request for comment.
One Gemini Earn user named Robert Smith tweeted in response that the Winklevoss twins should have known that Genesis, their lending partner, was in serious trouble after Three Arrows Capital declared bankruptcy in July. “There was no attempt to warn us,” Smith said.
The parent firm of Genesis, Digital Currency Group–which is run by crypto mogul Barry Silbert–owes its subsidiary Genesis nearly $1.7 billion, in the form of two separate loans, including the $1.1 billion that Genesis lost to Three Arrows Capital in July; DCG later assumed that debt. “Our understanding is that Genesis paused withdrawals due to a liquidity issue resulting from a liquidity duration mismatch between Genesis’ assets and its liabilities,” Gemini wrote on November 16.
Launched in early 2021, Gemini Earn was part of a wave of crypto lending businesses–along with BlockFi, Voyager Digital and Celsius; it promised customers annual returns of “up to 7.4%” on their crypto deposits. “We designed a program that allows our customers the ability to generate a real return without having to sell one of the best performing asset classes of the decade,” boasted Tyler Winklevoss, in Gemini Earn’s original press release.
But Gemini quickly expanded Earn to enable users to earn interest on more unconventional assets. In May 2021, Gemini announced users could generate returns on their Dogecoin, the meme cryptocurrency that soared on speculative interest driven heavily by Elon Musk’s tweets. “The individual feels like doge is money? Then it is,” Noah Perlman, Gemini’s chief operating officer, said to CNBC at the time. “When you compare the rates that we’re offering to what you can get in a traditional money market or CD, it’s up to 100 times more,” he added.
Prior to last month’s freeze, Gemini Earn offered interest-bearing products on 51 different tokens, including up to 5% annual interest on Solana
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It’s all a huge comedown for the Winklevii, the 6 ‘5’’ former Olympic twin rowers who famously sued Mark Zuckerberg for stealing their idea to start Facebook, and then parlayed their $65 million of Facebook stock (which they received in a settlement) into a Bitcoin fortune. This past summer, while trouble was brewing in crypto markets, the Winklevoss twins took their cover band, Mars Junction, across the country; one critic described their routine as “rich guys doing bad cruise ship karaoke.”
Private investors valued Gemini at $7.1 billion in a $400 million fundraising round in November 2021, in part because of the exchange’s promise to provide yield-hungry investors with interest-bearing crypto products. As of then, Gemini Earn had lent out $4 billion of customers’ crypto. It’s not clear whether the size of Gemini Earn’s loan book has shrunk or grown since that date, or whether Genesis is on the hook for more than the $900 million reportedly lost. Genesis did not respond to Forbes’ request for comment.
“The big question will be to see what the twins and/or creditors do,” said Daniel Kim of FBG Capital, a Singapore-based crypto investment firm, in an email. “If the twins can’t get anywhere with Genesis, will they attempt to cover some/all the debt themselves or give up equity like what Bitfinex did?” he added, referencing the sister company of stablecoin issuer Tether, which paid off a $550 million loan to Tether last year.
If Cameron and Tyler Winklevoss were to dip into their personal fortunes to bail out their customers, they would have to sell either their Gemini equity or personal crypto holdings. Neither is an appealing option. Any sale of Gemini equity would likely come at a steep markdown from its last fundraising round, which occurred at the peak of last year’s crypto froth. The duo’s estimated stash of 56,000 bitcoins between them is currently worth about $950 million–a little over what Gemini Earn’s users reportedly are owed, and a fraction of the $3.8 billion those tokens were worth last year.
Some of Gemini’s customers are already demanding the Winklevii pay up. “You should open up your own wallet,” one user tweeted at Cameron Winklevoss. “Please fix this and don’t ruin millions of lives here.”