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DCG And Gemini Ink A Plan: Users To Receive All Their Crypto?

Per a report from TheBlock, Digital Currency Group (DCG) reached an agreement with crypto exchange Gemini. The two parties have been negotiating for months after the collapse of crypto lender Genesis, a DCG subsidiary, and the Gemini Earn program.

The event left thousands of users without funds, leading to several lawsuits and the destruction of the relationship between the Digital Currency Group and the trading venue. The founders of Gemini, Cameron and Tyler Winklevoss, were public about their negotiations and their objective of making their clients whole.

DCG And Gemini Could Exceed Expectations

The report claims that the partners proposed a new creditor agreement to return “all of the crypto held by the platform,” when it filed for bankruptcy protection. According to the report, the new strategy aims to compensate clients with the following strategy and methodology:

(…) all unsecured creditors a 70-90% recovery with a meaningful portion of the recovery in digital currencies.

In addition, unlike similar processes, the new agreement would allow users to benefit from a potential upside in the price of Bitcoin and Ethereum. If these cryptocurrencies rise to $85,000 for BTC and $8,500 for ETH, clients would still receive an equivalent amount.

In other words, clients will receive their funds as they were when Genesis filed for bankruptcy rather than freezing the amount in US dollars. Genesis’ parent company described the agreement as a:

(…) remarkable outcome for any liquidating chapter 11 case, let alone one in the volatile cryptocurrency industry.

TheBlock indicates that the new agreement is yet to be voted by creditors. The above clause, to allow clients to benefit from a potential crypto bull run, is aimed at incentivizing creditors to vote in favor of the proposal.

GBTC Gains Ease Recovery For Gemini Earn Users

DCG’s $630 million loan to provide respite for its subsidiary would be repaid in cash, partially, and via a financial instrument to be settled by 2025. In addition to this loan, Genesis owes over $1 billion to Gemini’s clients.

The report also notes that Genesis posted 60% of this amount as collateral as shares for the Grayscale Bitcoin Trust. The possibility of the US Securities and Exchange Commission (SEC) allowing the latter to convert into an exchange-traded fund (GBTC) has positively impacted its value.

Therefore, the discount between the GBTC and the spot price for Bitcoin has been declining and could continue to do so in the coming months for the benefit of Gemini Earn clients. The agreement stated as the report noted:

At current pricing, the Gemini User Collateral is worth approximately $607 million. If Gemini agrees to provide $100 million to Gemini Earn users under the Proposed Agreement, as it previously did, or to distribute even a small portion of the Gemini User Collateral to Gemini Earn users, there would be little doubt Gemini Earn users would receive a full recovery.

As of this writing, Bitcoin trades at $26,100 with sideways movement in the last few days.

Bitcoin Grayscale DCG Gemini

Cover image from Unsplash, chart from Tradingview

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Gemini Hits Back At SEC Lawsuit With Dismissal Filing

Gemini, an American cryptocurrency exchange, has taken a stand against the United States Securities and Exchange Commission (SEC), deeming the lawsuit brought forth by the regulator as “absurd.”

Gemini Pushes Back Against SEC Lawsuit

In the ongoing legal battle between Gemini Exchange and the US SEC, co-founders Cameron Winklevoss and Tyler Winklevoss have contested the validity of the SEC’s case by submitting a comprehensive brief to oppose the SEC’s claims on the Gemini Earn program. 

In the filing, Gemini stated that the SEC had failed to establish a clear definition of what the regulatory body regards as securities. The exchange also highlighted the absence of well-defined requirements for violating regulatory laws. As a result, the lack of specification in the SEC’s argument hampers the exchange’s ability to respond properly to the allegations put forward. 

In the Judicial presentation, the exchange urged the court to ignore the “convoluted analysis” provided by the SEC. The exchange has instead advocated for direct questions which would determine if the cryptocurrency in question qualifies as a security. 

Gemini has also stated that the SEC should provide an identification of the unregistered security and information on the specific sale, highlighting that treating all cryptocurrencies as unregistered security is prejudiced. 

The company’s lawyer, Jack Baughman also publicly refuted the SEC’s claims in a Twitter post, saying:

The SEC is floundering. They can’t even decide what the security is. On the one hand, they claim that the Loan Agreement was a security. On the other hand, they claim that the entire Gemini Earn program was itself a security — an argument absurd on its face.

Gemini USD (GUSD) price chart from Tradingview.com

Background On The SEC Lawsuit

Earlier this year, on January 13, the US SEC filed a lawsuit against Gemini and Genesis, a crypto lender affiliated with Gemini Trust Company. According to the SEC, Genesis loaned the exchange’s users unregistered securities through the Gemini Earn program, allowing the exchange and Genesis to accumulate billions of dollars worth of crypto assets from thousands of investors. 

At the beginning of February 2021, Genesis and Gemini initiated a partnership that would offer the Gemini Earn program to retail investors allowing them to loan their crypto assets to Genesis, while the exchange acts as a middleman. Genesis would then invest the crypto assets, and pay users in interest.  

The SEC alleged that the company, alongside Genesis, violated federal laws via the Gemini Earn program by not registering its offerings and sales with the Commission. The lawsuit was received with an unfavorable response from the exchange’s legal team, which resulted in the dismissal motion submitted on August 18.