DCG: why the American giant is so worrying

‍Usually this kind of exchange takes place in private, but, this time, Cameron Winklevoss decided to play it another way. In a tweet published on Monday, the co-founder of US platform Gemini called out Barry Silbert, the boss of Digital Currency Group (DCG), accusing him of embezzling money from "hundreds of thousands of people" as part of the FTX bankruptcy.

This tweet immediately unleashed a mountain of reaction and prompted Barry Silbert to come out of the woodwork, who refuted the accusations. But what's really going on?

We take stock 🔍‍

👉 Where did this come from?

‍It all started on 16 November. On that day, crypto lending firm Genesis announced a freeze on withdrawals from its platform, some of whose funds had gone up in smoke with the fall of FTX (on 11 November).

Genesis is no small player. This DCG subsidiary manages several billion dollars on behalf of companies, funds and platforms. Gemini was one of them and worked with Genesis to offer yield products to its clients; 8% per annum. 

In November, Barry Silbert pledged to help his group's subsidiary financially so that withdrawals on Genesis would resume. Except that nothing has happened since. Gemini's 340,000 customers have no access to their funds, valued at almost a billion dollars! 🫣

A complaint was filed against Gemini at the end of December, hence Cameron Winklevoss's tweet.‍

👉 What's the problem?‍

Aside from the fact that DCG didn't help its Genesis subsidiary, we have learned, in the meantime, that Genesis had lent money to... DCG. This is precisely what Cameron Winklevoss is pointing out. According to him, DCG had misappropriated money from Gemini customers.

"It's a situation not unlike FTX's with Alameda," points out lawyer Victor Charpiat.

The aim of Cameron Winklevoss is to put as much pressure as possible on Barry Silbert to recapitalise Genesis. He has given him until 8 January to do so, failing which he promises the matter will be settled in court.

One of the cards Gemini could play is the financial proximity between Genesis and DCG - exchanging money - to say they are the same company and force DCG to pay up. "‍

👉 Could DCG collapse?‍

It's impossible to know at this stage. What is certain is that DCG does not appear to have sufficient cash otherwise the situation would probably have already been resolved.

Some explain that if DCG cannot pay, another option might be to push the company to sell its positions within another of its subsidiaries, Grayscale. Founded in 2013, this company is quite simply the largest crypto asset manager on the planet (over $50 billion).

"It's their cash cow," confirms the head of one fund. But it's still a secondary option and we don't know how deep Grayscale's pockets are.