Early this morning Beijing time, Cameron Winklevoss, co-founder of the American encryption trading platform Gemini, posted another long post.

Cameron alleges that DCG founder and CEO Barry Silbert and other key personnel misled everyone through false statements, convincing all parties that Genesis had recovered from the losses from the Three Arrows bankruptcy, thereby inducing lenders to continue to provide loans. Cameron believes that the $1.1 billion promissory note provided by DCG has not really been honored, and its actual value will be greatly reduced-a discount of 70%, which may only be sold for $300 million.

In addition, Cameron also disclosed to the DCG board of directors how its executives cooperated with Genesis and Three Arrows Capital to manipulate GBTC in violation of regulations, but in the end the plan failed, resulting in the high debt of Genesis and the deep liquidity crisis of DCG Group. The article also recommends that DCG's board of directors remove DCG's current CEO, Barry Silbert, and appoint a new CEO.

In response to Cameron's request, Barry Silbert and DCG officials stated that this is another desperate and non-constructive publicity stunt by Cameron, with the purpose of transferring the dissatisfaction of Earn users on the Gemini platform to DCG.

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The following is the content of the long article, compiled by Odaily, please be sure to indicate the source when reprinting

An open letter to the DCG Board of Directors:

I am writing to let you know that Gemini and over 340,000 Earn users have been acquired by Genesis Global Capital, LLC (Genesis), parent company Digital Currency Group, Inc. (DCG), DCG founder and CEO Barry Silbert and other key personnel cheated. These individuals conspired to make false statements and mislead Gemini, Earn users, other lenders, and the general public about Genesis' solvency and financial health. They did this to mislead lenders into believing that DCG had priced in Genesis' large losses from the collapse of 3AC, and to induce lenders to continue lending to Genesis. By lying, they hope to buy time to get themselves out of the quagmire - of their own making.

We're learning more every day, but here's the basics: Genesis lent $2.36 billion in assets to Singaporean hedge fund 3AC, which collapsed in June 2022; after collateral was liquidated, Genesis says it At least $1.2 billion was lost. At this point, Barry Silbert (Founder of DCG) had two reasonable options - either to restructure Genesis' loan structure (inside or outside bankruptcy court), or to simply plug the $1.2 billion hole. Sadly, he did neither.

At that time, Genesis's loan book totaled approximately $8 billion, meaning 3AC's $1.2 billion loss represented approximately 15% of loan book assets.(Note: According to the latest DCG article, Genesis's current loan book totals approximately $12-15 billion).At the time, the restructuring would have closed the gap, achieving full asset recovery for all lenders (including Earn users) in a short period of time, and giving them direct access to liquidity. But Barry Silbert didn't do that. Nor did he plug the $1.2 billion gap hole — instead, he pretended he did.

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1. Wicked lies to cover up problems

Public lies.On July 6, then-CEO Michael Moro tweeted: "DCG has assumed certain of Genesis' 3AC-related liabilities to ensure we have the capital to operate and scale our business over the long term."

This statement is false and misleading. In fact, DCG did not ensure that Genesis had enough funds to operate, and DCG did not provide Genesis with a penny of actual funds to cover 3AC's losses. Instead, DCG entered into a 1% 10-year promissory note with Genesis, due in 2032. The note was a complete gimmick and did nothing to improve Genesis' immediate liquidity position or make its balance sheet solvent (more on that later). Michael Moro also tweeted @DCG at the time, but no one at DCG (including Barry Silbert) corrected his misstatement.

private lie.Behind the scenes, multiple Genesis and DGG staffers began to spin more lies. For example, on the same day as Moro’s tweet (July 6), Genesis’ then-head of transactions and lending, Matthew Ballensweig, emailed a number of Gemini employees who managed the Earn project titled “Three Arrows Post-Analysis "document(Note: Ballensweig announced his departure in September last year and joined the encrypted wallet company Exodus). The "Key Facts" section of the document states:"Losses were largely absorbed by DCG's balance sheet, leaving Genesis with sufficient capital to continue operating (business as usual)."

This statement is false and misleading. In fact, DCG did not "absorb" 3AC's losses on its balance sheet. Doing so will require DCG to inject real-time support into Genesis. As I'll explain below, the DCG promissory note did not leave Genesis with sufficient capital on its balance sheet to continue normal business operations.

accounting fraud.Ballensweig perpetuated this lie by attaching a document titled “Gemini Risk Measurement Requirements” to the same email to Gemini employees. We found that the “Financial Status of Each Asset” section of the document contained at least two serious misrepresentations: (1) characterization of DCG promissory notes as “current assets” (in a document titled"other assets"subcategory); (2) value it at $1.1 billion.

First, under generally accepted accounting principles and consensus, "current assets" are cash, cash equivalents, or other assets that can be converted into cash within one year. A promissory note whose principal is due to be repaid within 10 years does not fall within the definition of "current assets" at all.

Second, there is no market in the world that values ​​unsecured long-term promissory notes at face value. The net present value (NPV) of the note will be discounted significantly (about 70%) to reflect its current value (likely $300 million).(Note: Gemini means that if DCG’s $1.1 billion promissory note is to be sold, it needs to be discounted, and it may only be sold for $300 million.)

The above-mentioned improper accounting practices are also reflected in the Genesis balance sheet (as of June 30, 2022) sent by Ballensweig. These misrepresentations (repeated in numerous documents sent to Gemini and other lenders over the ensuing months) were a ruse to make it appear that Genesis was solvent and capable of meeting its obligations to lenders, while DCG was actually There is no commitment to provide the financial support necessary to achieve this goal. DCG wanted to eat their own cake too. If not for the collapse of FTX, Barry Silbert and DCG may have cheated.secondary title

2. Related transactions between 3AC, Genesis and Grayscale

How did things get to this point? greedy. As an independent business, it's hard to imagine that Genesis would have lent 3AC that much money, given the low quality of the collateral 3AC provided.

Genesis is making these loans because it's part of a larger plan to make DCG businesses richer. More specifically, Genesis is willing to go to great lengths to lend money to 3AC because 3AC is using the money for a "suicide" Grayscale NAV trade - a recursive trade that makes The Grayscale Bitcoin Trust (ticker: GBTC) has seen its assets under management swell dramatically, as have the fees earned by its issuer, Grayscale Investments, LLC (Grayscale), a wholly owned subsidiary of DCG.

Note: The transaction logic is that 3AC borrows from Genesis to create the shares of Grayscale Bitcoin Trust, and then 3AC mortgages these GBTC shares in Genesis to borrow more bitcoins to repeat the above steps (repeated mortgage). When the 12-month (later 6-month) lockup for a specific portion of GBTC shares expires, GBTC trades at a premium (trading above NAV), and 3AC can sell the GBTC shares and collect the premium.This has worked, but in early 2021, GBTC stock started trading below NAV - and the discount has continued and widened since then. This not only kills NAV transactions, but also means that 3AC's GBTC collateral issued on Genesis is depreciating, further exacerbating the liquidation of 3AC's loans.

Genesis records these interactions with 3AC as actual mortgages. However, this is not the case at all. In fact, 3AC is just a channel (bridge) of Genesis, allowing Genesis and Grayscale Trust to conduct efficient swap transactions between BTC and GBTC stocks.3AC is a mule that transports assets between two parties, with BTC on one end and GBTC on the other. In this transaction, Genesis is betting that GBTC shares will be worth more than BTC in the future. Eventually, the Genesis risk factor skyrocketed.

In fact, Genesis has been the winner of this zero-sum trade until 2021, as GBTC has been at a positive premium. Starting from March 2021, the positive premium of GBTC will disappear, and the discount will gradually appear, and the Genesis business will no longer be able to continue. Usually, all things being equal, gains and losses cancel each other out, in other words, Genesis is both a loser and a winner. Surprisingly, however, Genesis never seems to win as it apparently always cedes them - the GBTC stock premium - to 3AC. This means that Genesis only participates in the loss, turning what would have been a zero-sum transaction into a negative-sum transaction.

Disturbingly, when the NAV trade reversed (as any rational, independently operating business would do), Genesis not only failed to close out its 3AC collateral, but continued to lend to 3AC on attractive terms, And accept GBTC as collateral. For Grayscale, this has the effect of keeping GBTC shares from being sold on the market, which would depress the stock price and further widen the discount. But for Genesis, that had the ill effect of keeping its risk position open and continuing to grow.

Why would Genesis enter a toxic risk position when the best it can do is not lose money? The real insight comes when you really realize that Bitcoin in Grayscale Trust is like a Thanksgiving turkey stuck in there forever. GBTC can never be redeemed, or at least until Grayscale, at its sole discretion, implements a redemption program that allows GBTC shares to be converted back into Bitcoin.

The end result is that Barry is happy with Genesis investing more and more money in this toxic deal because it's a ploy to fund the Grayscale Trust - Genesis is like a machine printing money for the DCG universe forever machine. In order to achieve the goal, any means can be used.

Raw accounting fraud.Instead of registering the swaps as risky derivatives, Genesis truncated the swaps on its balance sheet, incorrectly describing them as mortgages. This made Genesis' balance sheet look healthier than it really was, fraudulently enticing lenders to keep making loans.

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3. Remove the CEO and move on

All that said, we don't see a bright future as long as Barry Silbert is CEO of DCG. He has proven himself unsuitable to manage DCG, unwilling and impossible to reach a fair and reasonable settlement with creditors.

Therefore, Gemini, on behalf of 340,000 Earn users, demanded that the board of directors immediately remove Barry Silbert as CEO and appoint a new CEO to correct the mistakes that occurred during Barry's tenure. Genesis borrowers, including Earn users, have been seriously harmed and deserve a solution to restore their assets.

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