Genesis, DCG and the future of corporate crypto

What a difference a month makes. In early January, the Winklevoss twins and fellow crypto billionaire Barry Silbert were engaged in an unseemly screeching match on social media as the former accused Silbert of fraud and called for him to step down from as CEO of the privately held conglomerate, Digital Currency Group. But on Monday, the tone changed decidedly with everyone declaring how pleased they were to be working together on a path forward.

And so ends a crisis that erupted in November when DCG’s lending subsidiary Genesis suspended payments to its business partners and later declared bankruptcy. The situation put the Winklevoss twins in an awkward position as their company, Gemini, relied on Genesis to operate its Earn program, which offered high interest rates to hundreds of thousands of retail customers to park their crypto. Those customers, unable to retrieve their funds, then filed a class action suit against Gemini, while the Securities and Exchange Commission sued both Gemini and Genesis.

Now, Gemini and other creditors have reached a deal with Genesis that will recapitalize the troubled lender while presumably allowing Earn customers to recover their funds. The details are still emerging but the arrangement appears to involve the Winklevoss twins kicking in $100 million while Silbert will sell shares of another one of his subsidiaries, the cash-cow Grayscale, to make this come together.

All of this is a good thing, both for Earn customers who stand to get their money back, but also for the broader crypto industry that is ill-equipped to absorb more shocks following the collapse of FTX, Three Arrow Capitals, and other one-time corporate pillars.

As for Silbert and the Winklevii twins, their future is murky at best. For more than a decade, the men have held themselves up as responsible actors amidst an industry swarming with cowboys and rogues. They were instrumental in bringing crypto to the corporate world, using their pedigree and connections to convince institutions and regulators they could build a business around Bitcoin and Ethereum.

Now, their reputations are badly scarred—perhaps permanently—and they face a host of legal troubles. As Matt Levine has explained, the SEC has a strong case that the Earn program amounts to the unlicensed sale of securities, while Silbert is facing particular jeopardy over unorthodox dealings between the various units of his crumbling DCG empire. The immediate crisis has passed but it feels like a matter of time before they are engulfed by further ones.

This is likely to result in an unfortunate ending for both Silbert and the Winklevoss twins, who were instrumental in turning crypto into a trillion-dollar market. But now it’s time for a new generation of corporate crypto leaders to emerge—ideally ones who have learned from the mistakes of the early titans.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

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