Crypto lending firm Genesis Global Capital has recently initiated legal action against its previous associate, the cryptocurrency exchange Gemini Trust.
The lawsuit seeks the recovery of over $689 million, claiming Gemini conducted favored transactions, specifically withdrawing an around $689.3 million from Genesis, to the detriment of other creditors. Genesis has appealed to the court to address and rectify this. Now, Gemini Earn creditors are facing a dilemma following the proposal of a reorganization plan by Gemini Trust.
The plan, detailed in an email on December 13 and now up for a vote, could lead to a drastic reduction in cryptocurrency payouts, potentially amounting to about 70%.
This situation arose after Genesis Global Capital declared bankruptcy on January 19, 2023. The proposal says creditors will receive payouts equivalent to their Earn crypto balances as of this date.
However, this valuation poses a problem due to fluctuating cryptocurrency values. For instance, at the time of Genesis’s bankruptcy filing , Bitcoin (BTC) and Ethereum (ETH) were valued at $20,940 and $1,545, respectively. These values have since escalated to $42,750 and $2,250, creating a stark contrast between the original and current market rates.
Bloomberg exchange-traded fund analyst James Seyffart termed the plan as “brutal.” Under the worst-case scenario of a 61% recovery, a Bitcoin in a creditor’s Gemini Earn account would be worth $12,773, just 30% of its current market value.
The potential reduction in payouts has incited an intense backlash from Gemini’s user base. Users expressed their frustration and disappointment on various platforms, including Twitter, condemning the plan as a “betrayal” and urging fellow creditors to vote against it . The common sentiment among users is a demand for full restitution of their funds, with anything less deemed unacceptable.
One user articulated the community’s sentiment, stating : “After a year this is absolutely insane. You killed our souls. You damaged our hearts and health.”
These comments reflect the deep emotional and financial impact the situation has had on Gemini’s customers.
Gemini Earn, a program that allowed users to earn interest in cryptocurrencies, relied heavily on funds withdrawn from Genesis. The bankruptcy of Genesis has directly impacted the program’s ability to fulfill its promises. Gemini is currently attempting to recover $1.6 billion from Genesis to compensate Earn users.
Creditors face a critical decision with a deadline of January 10, 2024, to accept or reject Gemini’s proposed plan. Should the plan receive approval from the creditors, it will then proceed to the bankruptcy court for a final decision, expected to be made on February 14, 2024.
This development in the cryptocurrency sphere highlights the inherent risks and volatility associated with digital assets and the complexities involved in managing and safeguarding investors’ interests in this rapidly evolving market.