Cryptocurrency exchange Gemini and now-bankrupt stock brokerage Genesis have discussed a potential merger in October 2022 in the wake of the collapse of hedge fund Three Arrows Capital, which left Genesis with a $1 billion hole.
The discussion took place at lunch between Barry Silbert, CEO of the cryptocurrency group — which owns Genesis — and Gemini co-founder Cameron Winklevoss, according to an email included in Silbert's motion to dismiss the NYAG's lawsuit against him for allegedly concealing losses.
According to Silbert's notes, which were sent to other DCG and Genesis executives, he explained that Genesis was likely headed toward bankruptcy and that this could severely impact Gemini. This was due to Gemini loaning user funds to Genesis as part of the exchange's Earn program, money that Genesis was not sure it could repay.
Options can range from a business partnership to a full corporate merger, Silbert noted. At the time, he said the latter option was the most exciting to him because the combined company “would be a juggernaut and be able to compete with Coinbase and FTX.” He said the combined company would be able to raise between $500 million to $1 billion and go public within two years.
Giving the department a 'run for its money'
Gemini is part of DCG's family of cryptocurrency companies and will be able to leverage its other portfolio companies, Silbert said, according to his notes. This would have included direct Genesis order flow to the exchange, having Foundry direct bitcoin miners to trade and save with it and using cryptocurrency news publication CoinDesk to attract new customers. He added that offering Gemini's stablecoin GUSD among its portfolio companies could help give Circle and USDC a run for their money.
“Even without a merger, there is only so much Gemini and Genesis can do together and the two companies should lean together, not separate,” Silbert said. “Frankly, terminating the Earn partnership poses potentially catastrophic risks to Genesis and therefore to Gemini. So, at the very least, they need to reconsider this decision.”
Silbert noted that he had some concerns at the time. He was concerned that Genesis would not be able to replace the required liquidity at the pace discussed. He was also afraid that Genesis' failure to replace liquidity could lead to other lenders flocking to Genesis. “We need to avoid a bank run, no matter what,” he said.
No merger occurred
After this lunch, Gemini and Genesis were not integrated and continued to dispute repayment of the money borrowed during the Earn Program. Genesis filed for bankruptcy in January 2023. A few months later, Gemini sued DCG for alleged fraud related to the Earn program.
In October 2023, NYAG filed a complaint against Gemini, Genesis, DCG, Silbert and former Genesis CEO Michael Morrow alleging that the entities covered the $1 billion gap. DCG sold CoinDesk to cryptocurrency exchange Block.one Bullish in November 2023. On March 6, 2024, DCG and Barry Silbert filed motions to dismiss the NYAG lawsuit.
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