Cryptocurrency exchange Gemini unveiled a tentative settlement late Wednesday that seeks to make whole the users of its high-yield Earn program after a disastrous unraveling in recent months.
TLDR
- Gemini reached a settlement to return $1.1 billion in assets to Earn program users after Genesis bankruptcy
- Users will get 100% of their assets back plus gains, totaling potentially over $1.8 billion
- Gemini contributing $40 million to support repayment and paying $37 million fine
- Settlement pending court approval, with disbursements over 12 months
- Regulator found Gemini failed to properly vet lending partner Genesis, who defaulted on $1B in loans
Under the proposed terms, Gemini would return $1.1 billion in cryptocurrencies to Earn participants – the full value of their initial deposits. Thanks to subsequent market gains, they stand to recoup over $1.8 billion based on current token prices.
The agreement comes after Genesis, the partner providing the backend yield service for Earn users, froze withdrawals in November before nose-diving into bankruptcy. The implosion later triggered allegations of fraud against Gemini and Genesis parent Digital Currency Group.
Earn Update: Today, we are pleased to announce that we have finally reached a settlement in principle with Genesis and other creditors in the Genesis Bankruptcy that will, if approved by the Bankruptcy Court, result in all Earn users receiving 100% of their digital assets back in…
— GeminiTrustCo (@GeminiTrustCo) February 28, 2024
According to regulators, Gemini exhibited ‘unsafe and unsound practices’ in its handling of Earn. Their investigation found the exchange failed to properly vet or monitor Genesis before funneling user deposits into the unregulated lending scheme.
The lapse proved catastrophic once losses mounted at Genesis. Saddled with over $1 billion in bad loans, the crypto lender defaulted – leaving Earn participants stranded without access to their funds for months.
Under the proposed Gemini settlement, the Winklevoss-owned exchange will contribute $40 million to support the Genesis bankruptcy proceedings. Gemini also faces a $37 million penalty payable to state regulators.
If approved, the deal unlocks a lengthy repayment process for Earn users. Gemini expects participants to receive approximately 97% of assets within two months. The balance would get disbursed over the following year as the Genesis bankruptcy wraps up.
Gemini struck an apologetic tone in its announcement, emphasizing its role as a ‘responsible steward’ and desire to make users whole. But regulators warn they could still take further action if Gemini fails to reimburse clients.
All told, the debacle dealt a staggering blow to Gemini’s ambitions in crypto financial services. The once-hot Earn program lies in ruins after the exchange entrusted user funds to Genesis without adequate protections in place.
Now Gemini faces a long road ahead to rebuild trust as it works to return more than $1 billion to those burned by Earn’s collapse. Despite the settlement, regulators continue scrutinizing the exchange over its mistaken reliance on an unvetted partner.