Winklevoss twins

Crypto Stories Part 2: Bitcoin led Charlie Shrem into a tumultuous life

The man who introduced the Winklevoss twins to crypto ended up in prison. He expressed no regrets to Cointelegraph.

Charlie Shrem paid a steep price for his place in crypto history. Major figures in the crypto world were part of his story, and his personal life was transformed as he went from online retailer to CEO of Bitcoin (BTC) exchange BitInstant and convicted felon before he was even 30.

Coming from a prominent family in Brooklyn’s Syrian Orthodox Jewish community, Shrem was on the path to becoming a rabbi from an early age.

“The only way to get out was through money,” Shrem realized. He said on Cointelegraph’s Crypto Stories:

“On the internet, people didn’t judge me based on any other factors other than what I was contributing to the conversation […] My opinion was appreciated very greatly.”

Shrem learned of Bitcoin and developed the concept for BitInstant, a company that facilitated purchases of Bitcoin at a time when it could only be obtained from Mt.

“Bitcoin Jesus” Roger Ver invested in BitInstant.

Gemini to launch derivatives platform outside the United States

The platform’s first derivatives contract will be a BTC perpetual contract denominated in Gemini Dollar, followed by an ETH/GUSD perpetual contract.

United States-based crypto exchange Gemini announced on April 21 the upcoming launch of a derivatives platform outside the United States. The move comes amid a tightening, uncertain regulatory environment for crypto firms in the country.

Dubbed Gemini Foundation, the offshore division will offer services to users based in Singapore, Hong Kong, India, Argentina, Bahamas, Bermuda, the British Virgin Islands, Bhutan, Brazil, the Cayman Islands, Chile, Egypt, El Salvador, Guernsey, Israel, Jersey, New Zealand, Nigeria, Panama, Peru, the Philippines, Saint Lucia, Saint Vincent and Grenadine, South Africa, South Korea, Switzerland, Thailand, Turkey, Uruguay and Vietnam. It will not offer services for customers in the United States.

The platform’s first derivatives contract will be a Bitcoin (BTC) perpetual contract denominated in Gemini Dollar (GUSD), followed by an ETH/GUSD perpetual contract shortly after.

1/ Introducing Gemini Foundation – a non-US crypto derivatives platform.

Coming soon…https://t.co/HtFHHfAP8d

— Gemini (@Gemini) April 21, 2023

Eligible customers will be able to trade both spot and derivatives products, as well as convert U.S. dollars and USD Coin (USDC) into GUSD on a 1:1 basis. Fees, profits and losses will also be processed in GUSD. The default leverage is 20x, with the maximum possible leverage being 100x.

Unlike traditional futures contracts, perpetual contracts never expire. Perpetual futures trading is not regulated by the Commodity Futures Trading Commission, and exchanges offering crypto futures contracts, like BitMEX, are not available for U.S. customers.

The move comes a few days after Gemini revealed plans to establish a new engineering hub in India. The exchange’s founders, Tyler and Cameron Winklevoss, recently announced that Gemini has “big plans for international growth this year in APAC.” Earlier this month, Gemini filed a pre-registration with the Ontario Securities Commission to become a restricted dealer in Canada.

Gemini has been scrutinized by U.S. authorities, with the New York State Department of Financial Services reportedly investigating the exchange over claims that many users had believed assets in their Earn accounts were protected by the Federal Deposit Insurance Corporation.

Gemini’s Earn program halted withdrawals in November after its operating partner, Genesis, cited “unprecedented market turmoil.” In January, the firm filed for Chapter 11 bankruptcy. Reports at the time suggested that up to $900 million in Earn user funds could have been locked. The U.S. Securities and Exchange Commission also charged the exchange with offering unregistered securities through Earn in January.

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Winklevoss twins infuse Gemini with $100M personal loan: Report

The cash infusion reportedly followed Gemini attempting to get funding from outside investors without success.

Tyler and Cameron Winklevoss, co-founders of the United States-based cryptocurrency exchange Gemini, have reportedly dipped into their own pockets to fund the business amid the crypto market downturn.

According to an April 10 Bloomberg report, the Winklevoss twins made a personal $100-million loan to Gemini following attempts to get funding from outside investors. Cointelegraph reached out to Gemini for comment, but did not receive a response at the time of publication.

EXCLUSIVE: Gemini founders Tyler and Cameron Winklevoss have lent $100 million to the crypto platform https://t.co/owaGrepngE

— Bloomberg (@business) April 10, 2023

The reported loan came amid regulators scrutinizing Gemini’s activities. In January, the U.S. Securities and Exchange Commission charged Gemini, as well as Genesis Global Capital, with offering unregistered securities through the exchange’s Earn program. New York’s Department of Financial Services also reportedly began investigating the exchange following reports many Gemini users claimed assets in their Earn accounts had been afforded FDIC protection.

Following the announcement of the charges, Tyler Winklevoss accused the SEC of issuing a “manufactured parking ticket,” claiming Gemini staff had been in talks with the regulator for more than a year prior to its enforcement action. The complaint echoed that of crypto exchange Coinbase, whose chief legal officer said personnel met with SEC representatives “more than 30 times over nine months” but still received a Wells notice.

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Gemini and Genesis’ legal troubles stand to shake up industry further

Now that the SEC has gotten involved in the ongoing Gemini–Genesis spat, things could get ugly for both parties in the near term.

With investor confidence seemingly at an all-time low thanks to the recent slew of insolvencies, a new saga seems to be now unfolding in real time. This one involves crypto exchange Gemini’s Winklevoss twins and Barry Silbert, CEO of Digital Currency Group (DCG) — the parent firm behind crypto market maker and lender Genesis.

On Jan. 2, Cameron Winklevoss posted an open letter to Barry Silbert reminding him of the fact that it had been “47 days since Genesis halted withdrawals” while also providing a blunt, seemingly confrontational assessment of DCG’s existing business practices:

“For the past six weeks, we have done everything we can to engage with you in a good faith and collaborative manner in order to reach a consensual resolution for you to pay back the $900 million that you owe.”

The letter further indicated that the aforementioned sum was lent to Genesis as part of Gemini’s Earn program, an offering enabling customers to earn up to 7.4% annual percentage yield on cryptocurrencies. Cameron then issued another tweet requesting Silbert “publicly commit” to solving the problem by Jan. 8 — a request seemingly ignored by him, at least on Twitter.

Tensions have been mounting

Genesis’ ongoing woes stem from the fact that a significant portion of its funds (estimated to be worth $175 million) have been locked in an FTX trading account. Following the collapse of the once second-largest crypto exchange late last year, the company had to halt withdrawals on Nov. 16, even reportedly hiring the consultation services of investment bank Moelis & Company just a week later to get itself out of this pickle.

In a Dec. 7 letter, Derar Islim, the interim CEO of Genesis, told clients that “it will take additional weeks rather than days for us to arrive at a path forward.” In response, Winklevoss and company hired investment bank Houlihan Lokey to devise a framework with which they could “resolve its liquidity issues” keeping them from repaying members of Gemini’s Earn program.

Things then took an ugly turn on Dec. 27 when investors sued the twins over the blocked funds in the Earn program, accusing the two of fraud and several infractions of U.S. securities laws.

Furthermore, Silbert responded to Cameron’s constant Twitter nudges on Jan. 2, noting that Genesis had already taken action regarding Gemini’s proposal while also claiming innocence for DCG, stating unequivocally that the company had not been overdue to its payments to Genesis. In response, Cameron tweeted back:

There you go again. Stop trying to pretend that you and DCG are innocent bystanders and had nothing to do with creating this mess. It's completely disingenuous.

So how does DCG owe Genesis $1.675 billion if it didn't borrow the money? Oh right, that promissory note…

— Cameron Winklevoss (@cameron) January 2, 2023

Gemini terminates Earn program with Genesis

After weeks of turmoil, on Jan. 10, the Winklevoss twins sent out an email to users informing them that Gemini had terminated its flagship Earn program with Genesis two days prior. The move was the latest of many shots fired between the firm and the crypto lender, with the email stating:

“We are writing to let you know that Gemini — acting as an agent on your behalf — has terminated the Master Loan Agreement (MLA) between you and Genesis Global Capital, LLC (Genesis), effective as of January 8, 2023.”

The message then went on to add that effective immediately, Genesis was required to clear any outstanding assets that it had in association with the program, which until last month was offering users up to 8% interest on their crypto holdings.

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At present, customers can view their Earn balances under the “Pending” column as Gemini officials continue looking for a way to return customer money as soon as possible. “The return of your assets remains our highest priority and we continue to operate with the utmost urgency,” the email stated.

Lastly, in a claim filed in court on Jan. 8 in response to the class-action lawsuit put forward by Gemini Earn’s customers, Gemini says that much like its clients, it too has been the victim of Genesis and DCG Group’s conduct, claiming that the company’s executive brass had “misled defendants about Genesis, its financial condition, and its ability to act as a responsible borrower in the Gemini Earn program.”

Gemini has denied all of the accusations made against it by its clientele, saying it had all signed an agreement to “arbitrate claims relating to the Gemini Earn program” and that the various claims and causes of action initiated by the plaintiffs’ should not be litigated in any forum unless Genesis is also involved with the same.

SEC charges Genesis and Gemini

On Jan. 12, the U.S. Securities and Exchange Commission charged Gemini and Genesis with allegedly selling unregistered securities as part of the Earn offering. As per the regulatory body, Genesis loaned the assets accrued off of Gemini’s users while sending a portion of the profits back to Gemini, with the latter deducting an agent fee of around 4% and returning the remaining profits to its customers.

According to SEC officials, Genesis was required to register the program as a securities offering, with Chair Gary Gensler adding that the charges are designed to build on previous such actions to make it known to “crypto lending platforms and other intermediaries” that they need to adhere to the regulatory agency’s time-tested securities laws.

*Gensler testifying before a Congressional oversight committee. Source: Reuters/Evelyn Hockstein*

The SEC said the Earn program had a direct impact on a whopping 340,000 investors, adding that between January 2022 and March 2022 alone, Gemini raked in $2.7 million in agent fees, with the company using client assets to facilitate various lending activities as well as using it as collateral for personal borrowing. During the same three-month stretch, the agency claimed that Genesis generated interest income of $169.8 million while paying out $166.2 million to clients (including Gemini) as profits.

Some of Genesis’ key backers included crypto hedge fund Three Arrows Capital and Sam Bankman-Fried’s Alameda Research, two entities that are now virtually worthless.

Rocky road ahead

To get a better overview of the matter, Cointelegraph reached out to Rachel Lin, co-founder and CEO of SynFutures — a decentralized exchange for crypto derivatives. In her view, Genesis failed to properly hedge its portfolio risks and manage its treasury, leaving its balance sheets heavily affected by the FTX contagion. She added:

“Silbert has yet to fully own up to this failure, with some viewing his recent actions as a stall tactic while they search for emergency liquidity. Rather than calling out Gemini and its co-founder Cameron Winklevoss’ demands as publicity stunts, both parties should be putting user deposits first, as there are contractual obligations on both sides.”

And while Gemini’s termination of its master loan agreement with Genesis may be a way to deflect blame and play the victim, Lin believes that in the long run, the move may be a net positive for Earn depositors, as it puts additional pressure on Genesis to repay its debt to Gemini.

Lin noted, “Gemini isn’t without blame in this incident. Although the company claimed to have conducted proper due diligence on Genesis, it’s clear that it wasn’t enough. As a result, Gemini should bear at least part of the responsibility for its defunct Earn program.”

Matthijs de Vries, founder and chief technology officer for blockchain technology firm AllianceBlock, told Cointelegraph that while it’s difficult to know what exactly the truth is with this situation, it doesn’t matter because the issue once again highlights the clear problem with centralization. He added:

“Putting your trust in individuals instead of smart contracts means you place trust in people, not technology. All of the issues we’ve seen in 2022, and continue to see, make the need for self-custody more and more important. Owning your own assets and being able to manage these assets as you wish is critical.”

He further stated that the tactics being used by Silbert don’t present a good look for the company. Also, instead of simply playing the blame game, the industry as a whole needs to learn from this, de Vries argued. “Blockchain was built to be decentralized, trusting yourself with your assets, not powerful individuals,” he concluded.

A similar opinion is shared by Jeremy Epstein, chief marketing officer for Radix — a smart contract platform for decentralized finance (DeFi) — who told Cointelegraph that the episode further reinforces the need for transparent ledgers and the visibility that comes from a decentralized financial system. In his view, when there are centralized entities that can hide their books behind walls, it makes trust very difficult to foster while further tarnishing the industry’s reputation.

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Lastly, Liu Sheng, lead developer for Opside — a multichain three-layer architecture for high-throughput Web3 applications — told Cointelegraph that such instances would never see the light of day with DeFi and decentralized autonomous organizations, as users never have to give away ownership of their assets when chasing yields. Sheng added:

“This implosion of centralized service providers hopefully takes us one step closer to a decentralized economy where greed can be managed in a more transparent atmosphere. If we put the proper infrastructure in place, we can hopefully convince retail investors that it’s safer to deal with decentralized entities.”

The SEC’s latest actions seem to have changed the trajectory of the entire story, especially with Tyler Winklevoss saying on Jan. 13 that Gemini was nearing a solution to its customers’ ongoing woes and that the SEC’s action was completely unneeded. He tweeted:

1/ It’s disappointing that the @SECGov chose to file an action today as @Gemini and other creditors are working hard together to recover funds. This action does nothing to further our efforts and help Earn users get their assets back. Their behavior is totally counterproductive.

— Tyler Winklevoss (@tyler) January 12, 2023

As more details regarding the case continue to emerge, it will be interesting to see how things continue to play out for the two companies as well as the digital asset industry from here on out, especially with the market going through a major shortage of investor confidence.

DCG chief Barry Silbert pens letter to shareholders, community reacts

Barry Silbert’s letter to shareholders came just hours after Cameron Winklevoss wrote an open letter accusing him of defrauding customers.

The crypto community woke to another drama-filled day after the Digital Currency Group (DCG) chief’s letter to shareholders went wrong. DCG CEO, Barry Silbert, penned a letter to the shareholders on Jan. 10, reflecting on the state of the crypto market and the growing fear, uncertainty and doubt (FUD) around the company. DCG is the parent company of crypto lending firm Genesis Global Capital and Grayscale, the world’s leading crypto asset manager.

In the letter, Silbert addressed the growing issues around DCG and its subsidiaries owing to the bear market and FTX contagion. He said that bad actors and the implosion of leading crypto companies had wreaked havoc on the industry. He noted, “DCG and many of our portfolio companies are not immune to the effects of the present turmoil.”

I’m incredibly proud of the role that DCG & I have played as pioneers & builders over the past decade. We’ve invested in >200 companies that have developed & shaped the industry, we’ve helped build the first publicly-quoted BTC fund, the largest asset manager in the space..(2/10)

— Barry Silbert (@BarrySilbert) January 10, 2023

In the latter half of the letter, Silbert addressed some raging questions about DCG’s relationship with FTX, the loan agreement with Genesis and more. He said that Genesis had a “trading and lending relationship” with Three Arrows Capital and had invested $250,000 in FTX’s Series B funding round in July 2021. DCG also borrowed $500 million between January and May 2022 at interest rates of 10%-12% and currently owes Genesis $447.5 million and 4,550 Bitcoin (BTC), worth $78 million, which matures in May 2023.

However, what puzzled the crypto community more was that Silbert avoided addressing accusations by Cameron Winklevoss that came just hours before his letter. Winklevoss penned an open letter to the board of DCG on Jan. 10, saying CEO Barry Silbert was “unfit” to run the company. He also accused Silbert of defrauding customers and hiding behind lawyers. Genesis reportedly owes Gemini $900 million.

One Twitter user wrote that the letter indicates that people might not get their money back. Another user questioned Silbert’s tactics of buying GBTC shares by selling borrowed BTC and wrote:

“So you borrowed Bitcoins, sold them, and bought GBTC shares? Not sure how you “hedge” GBTC long positions with Bitcoins otherwise.”

Other crypto community members accused Silbert of deflecting the allegations and called the letter a “PR tactic.”

Laymen terms! I’m Rekt and can’t pay @cameron @tyler @Gemini but I did some neat things along the way! https://t.co/8ZzrE5KIyZ

— KingKong (@KingKon43801491) January 10, 2023

A few users went on to compare his tactics to that of Terraform Labs co-founder Do Kwon, while others speculated that the letter hinted that Silbert might lose his job in the coming weeks.

Crypto investors sue Winklevoss twins over interest accounts on Gemini

The plaintiffs allege that the products were not registered, which prevented them from receiving disclosures to better assess the risks of using Gemini Earn.

Tyler and Cameron Winklevoss, founders of the Gemini cryptocurrency exchange, are reportedly facing a new lawsuit from investors over thinterest-earning program Gemini Earn.

Disgruntled investors have filed a lawsuit against Gemini founders accusing the firm of fraud and violations of the securities laws, according to a report by Bloomberg.

Filed on Dec. 27 in U.S. District Court in Manhattan, the complaint states that Winklevoss brothers refused to “honor any further investor redemptions” after halting those due to exposure to troubled trading firm Genesis Global Capital.

The plaintiffs alleged that the products have not been registered, which prevented them from receiving disclosures to better assess the risks of using Gemini Earn. Launched last year, Gemini Earn platform was designed to generate as much as 8% interest on their crypto holdings.

Gemini started facing major issues on Gemini Earn in mid-November, shortly after the first reports indicated FTX’s liquidity issues.

Since halting withdrawals in November, Gemini Earn remains unavailable for users as the platform has millions of dollars stuck on Genesis. According to some reports, Genesis and its parent company, Digital Currency Group (DCG), owe up to $900 million to Gemini clients.

On Dec. 20, Cameron Winklevoss took to Twitter to announce that Gemini had come up with a plan on behalf of the creditor committee to resolve the liquidity issues at Genesis and DCG and recover the assets.

Earn Update: Today, Houlihan Lokey presented a plan on behalf of the Creditor Committee to resolve the liquidity issues at Genesis and DCG and provide a path for the recovery of assets.

— Cameron Winklevoss (@cameron) December 20, 2022

On Dec. 7, Genesis issued a letter to its customers claiming that its withdrawal freeze was likely to last a few weeks as it workedto come up with a solution to recover users’ assets. The firm halted withdrawals on Nov. 16, citing “unprecedented market turmoil” caused by the collapse of FTX.

Gemini did not immediately respond to Cointelegraph’s request for comment.

Gemini gets regulatory greenlight in Italy, Greece amid lending halt

Winklevoss’ Gemini exchange received the latest regulatory approvals days before its lending product Gemini Earn faced major issues.

Winklevoss brothers’ cryptocurrency exchange Gemini continues expanding in Europe, announcing new regulatory approvals in Italy and Greece.

Gemini has registered as a virtual currency operator with Italy’s payments services regulator, the Organismo Agenti E Mediatori (OAM), the firm announced on Nov. 30.

The crypto exchange has also received registration as a custodial wallet provider and provider of virtual currency exchange with Greece’s Hellenic Capital Markets Commission (HCMC).

According to official data, the OAM registration was issued on Nov. 3, while the HCMC granted its approval to Gemini on Nov. 7.

The new registrations, combined with Gemini’s electronic money institution authorization from the Central Bank of Ireland, officially allow the exchange to provide crypto services to their customers in Italy and Greece. The approvals also aim to demonstrate Gemini’s compliance with applicable Italian and Greek Anti-Money Laundering and Counter Terrorist Financing regulations.

As of November 2022, Gemini operates in more than 65 countries, including new jurisdictions like Croatia, Cyprus, Czech Republic, Denmark, Hungary, Ireland, Latvia, Liechtenstein, Portugal, Romania, Slovenia, Sweden and others, the firm said.

The latest registrations came before Gemini encountered major issues on its lending platform known as Gemini Earn, which is designed to allow investors to get 8% in interest by lending their cryptocurrency. The product has reportedly halted withdrawals due to its connection with the troubled crypto trading firm Genesis Global Capital, with Gemini allegedly having $700 million of customer money locked in it.

According to Gemini status, Gemini Earn started experiencing issues with deposits on Nov. 16, a few days after initial reports on FTX’s liquidity issues surfaced. At the time of writing, the product remains unavailable, while all other Gemini services, including exchange trading engine, Gemini Credit Card and others operate normally.

Gemini Earn was launched in 2021 in the United States, providing services through a partnership with Genesis Global Capital, which halted withdrawals on Nov. 16 as a consequence of the ongoing FTX contagion.

“We continue to work with Genesis Global Capital — the lending partner of Earn — and its parent company Digital Currency Group to find a solution for Earn users to redeem their funds,” Gemini said in a tweet from Nov. 21.

On Nov. 29, Gemini also took to Twitter to announce Gemini Trust Center, assuring its customers that their accounts’ assets are segregated from Gemini’s assets. “Gemini is a full-reserve exchange and custodian. This means that all customer funds held on Gemini are held 1:1 and available for withdrawal at any time,” the company stressed.

As previously reported, Gemini was one of exchanges hit by the ongoing crypto bear market, cutting up to 20% of its staff this year. The exchange is also among platforms targeted by the United States Senate Finance Committee as part of the information request regarding customer protection measures in the aftermath of the FTX collapse.

Cameron Winklevoss steps down from Gemini’s European board

Despite the shift, Cameron and Tyler Winklevoss continue to run the cryptocurrency exchange’s global operations.

Cameron Winklevoss, a co-founder of cryptocurrency exchange Gemini, has stepped down from the European company board of directors, according to a Companies House filing from Oct. 12.

As indicated in a statement sent to a London publication, Cameron continues to lead Gemini’s global operations alongside his twin brother, Tyler Winklevoss:

“We can confirm this change was filed with Companies House and brings local leadership onto the board of directors to reflect the growth of Gemini’s business in the UK and Europe. Cameron and Tyler Winklevoss continue as President and CEO at Gemini.”

As per the filings, Gillian Lynch, the head of Gemini in Ireland and Europe, is taking Blair Halliday’s seat on the board. Blair was the U.K. managing director at Gemini for two years before moving to rival exchange Kraken this month, according to his LinkedIn profile.

In July, Gemini announced its registration as a virtual asset service provider (VASP) by the Central Bank of Ireland (CBI) after having received an electronic money institution (EMI) authorization from the CBI that allowed the company to issue electronic money, provide electronic payment services and handle electronic payments for third parties months before.

In June, the United States Commodity Futures Trading Commission filed a lawsuit against Gemini claiming that the company made false or misleading statements in 2017 during in-person meetings and in documents, violating the Commodity Exchange Act and other regulations.

The agency was making an evaluation of the potential self-certification of a Bitcoin (BTC) futures contract to be based on the spot Bitcoin price determined by an auction held on Gemini’s digital asset trading platform.

Also this year, the exchange laid off over 10% of its staff as part of “extreme cost-cutting” during the crypto winter, just two months after the company’s co-founders were featured as crypto billionaires by Forbes, with fortunes of $4 billion each.

Cointelegraph reached out to Gemini but did not receive a response as of the time of publication.