Gemini Challenges Genesis in Court Over $1.6 Billion Crypto Collateral Dispute

In a legal battle unfolding in the Southern District of New York Bankruptcy Court, cryptocurrency exchange Gemini has filed a significant adversary proceeding against Genesis Global Holdco, a bankrupt crypto lender. The dispute revolves around 62,086,586 shares of Grayscale Bitcoin Trust (GBTC) valued at nearly $1.6 billion, which were utilized as collateral for loans by 232,000 users through the Gemini Earn Program.

The exchange managed to foreclose on the collateral, bringing in $284.3 million for the benefit of Earn users. However, Genesis has contested this action, hindering Gemini from distributing the proceeds. Genesis has proposed using the initial collateral value, exceeding $800 million, to determine the deficiency claim of Earn Users. This move, if approved, could free up hundreds of millions of dollars for distribution to other creditors, raising significant concerns among the involved parties.

Gemini’s Claim: Upholding Users’ Rights and Defending Market Risks

Gemini contends that it took on market risks for the benefit of Earn Users and emphasizes that Earn Users are entitled to any gains resulting from these risks. They argue that a determination in favor of Gemini’s proper foreclosure and recognition of Earn Users’ rights would enable the return of over $1 billion in digital assets wrongfully withheld by Genesis for nearly a year.

Gemini Earn users, constituting 99% of Genesis creditors, face a crucial juncture in this legal battle. Their claims represent 28% of all claims by value. The outcome of this case will have significant implications for the crypto community, shaping the landscape of collateral management and user protection in the industry.

Genesis, which filed for bankruptcy in January and suspended withdrawals in November 2022, continues to face legal challenges from various fronts. Gemini’s lawsuit against Genesis and its parent company, Digital Currency Group, adds to the mounting pressure, with regulatory bodies and state authorities closely monitoring the developments. The crypto world awaits the court’s decision as it could set a precedent for future cases involving collateral disputes and user rights in the rapidly evolving digital asset space.