The Block: Barry Silbert defends DCG in response to Gemini's Winklevoss

Barry Silbert laid out a point by point rebuke of accusations made by Gemini President Cameron Winklevoss in an open letter earlier today that demanded the removal of the Digital Currency Group chief executive.

There is an ongoing spat over the frozen funds of Gemini's Earn users, with Winklevoss saying 340,000 of them “have been defrauded by Genesis Global Capital LLC, together with its parent company Digital Currency Group." He alleged that Genesis had misled the company, Earn users and the public about the com.

Before delivering specifics on DCG and Genesis’s activities in the form of a strange Q&amp;A where whomever is responsible for the responses is not identified, Silbert tried to shine a light on DCG’s many investments and successes. After which, however, he candidly explains that not only has the past year “been the most difficult” of his life but also having his “integrity and good intentions questioned” is particularly challenging.

Silbert said DCG has never comingled funds with any of its subsidiaries, nor that it had a relationship with Three Arrows Capital but "Genesis had a trading and lending relationship with Three Arrows Capital, and Three Arrows Capital defaulted on its loans from Genesis. Separately, Three Arrows Capital was an investor in various Grayscale products," Silbert wrote.

Winklevoss had said that Genesis was willing to "recklessly lend to 3AC because 3AC was using the money for the kamikaze Grayscale net asset value (NAV) trade."

He also said DCG never had a relationship with Alameda Research, though Genesis did have a trading and lending relationship with them. DCG made a small equity investment of $250,000 in FTX’s Series B in July 2021. DCG held a trading account with FTX with less than 1% of all of its trading volume transacted on that platform.

Promissory note DCG agreed to assign and exchange Genesis’s $1.1B unsecured loan receivable from Three Arrows Capital, the recovery on which was “highly uncertain,” with a promissory note from DCG.

"DCG did not receive any cash, cryptocurrency, or other form of payment for the promissory note. DCG effectively assumed Genesis’s risk of loss on the Three Arrows Capital loan with no obligation to do so," Silbert wrote. "Of note, during the period following Three Arrows Capital’s default, DCG contributed approximately ~$340M of new equity across Genesis entities to provide it with additional capital."

DCG did borrow capital from Genesis Capital, the lending arm of Genesis.

"These loans were always structured on an arm’s length basis and were priced at prevailing market interest rates,” Silbert said. “In addition to the promissory note discussed in question 14 below, DCG currently owes Genesis Capital (i) $447.5M* in USD and (ii) 4,550 BTC (~$78M), which matures in May 2023."

Towards the end of his personal note Silbert said he was optimistic for crypto in 2023 despite the industry suffering “a wave of unprecedented fraud and criminal behavior” which has cast a pall over its “credibility and reputation.” Updates: Story updated to remove repeated paragraph.

Disclaimer: Beginning in 2021, Michael McCaffrey, the former CEO and majority owner of The Block, took a series of loans from founder and former FTX and Alameda CEO Sam Bankman-Fried. McCaffrey resigned from the company in December 2022 after failing to disclose those transactions. © 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.