Gemini vs Genesis: A Fight Among Billionaires and the Customers They Represent |
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| We’ve spent a lot of time talking about the collapse of FTX recently, but trust us, we’d like nothing more than for this story to go away forever.
Unfortunately, the contagion keeps getting uglier.
The latest act in the FTX Soap Opera is a billionaire Twitter feud between Cameron Winklevoss of crypto exchange Gemini and Barry Silbert of Digital Currency Group (DCG).
Let’s just say that Winklevoss has run out of patience with Silbert.
The Case of the Missing $900 Million
The cause of Winklevoss’ frustration is the $900 million that Gemini has stuck in Genesis, a crypto lending platform and DCG subsidiary.
Gemini offered their customers an “earn” program in which users earn a yield as high as 8% on their crypto assets. To produce this yield, Gemini would transfer the crypto to Genesis, who would then lend it out and pass the returns back to Genesis.
The system worked great… until it didn’t.
It was revealed in the wake of FTX’s collapse that Genesis had about $175 million in exposure to SBF’s Ponzi. Couple that with huge losses sustained during the 3AC debacle, and you have a recipe for disaster.
In this case, the disaster led to Genesis halting withdrawals and redemptions on November 16. With $900 million of customer money stuck in Genesis, Gemini also had to pause withdrawals for their 340,000 “earn” users.
Twitter Fingers
Winklevoss is obviously not pleased with this state of affairs and took to Twitter to voice his frustration.
His letter is well worth a read in its entirety, but the key points are: - $900 million is missing
- Silbert is not doing all he can to find the money
- Silbert is a shady figure who borrowed $1.675 billion from Genesis (his subsidiary) to fund “greedy share buybacks, illiquid venture investments, and kamikaze Grayscale NAV trades”
- He is demanding a resolution by January 8th
Unsurprisingly, Silbert is not buying what Winklevoss is selling. According to him, DCG never borrowed $1.675 billion from Genesis, and it is Gemini, not DCG, who is not doing all they can to find the money.
Possible Consequences
Regardless of who wins the Twitter fight, this is a high-stakes situation for crypto.
If DCG is truly in trouble, that is very bad news for investors. As we covered a few weeks ago, DCG is the owner of Grayscale, the custodian of the Grayscale BTC trust, which currently holds about 643,572 bitcoin. Imagine if DCG is forced to liquidate some or all of that to cover its losses. That is an awful lot of sell pressure onto a market that doesn’t need any more sell pressure.
It’s too early to tell if that doomsday scenario will come to pass, but this is a situation we’ll be keeping a close eye on.
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Will This Be America’s Next Big Bankruptcy? |
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| As many of you know by now – FTX, which at one point was worth $32 billion and counted Blackrock and the Ontario Teacher’s Pension Plan as shareholders, recently went bust.
Then, there are the formerly “hot” tech businesses like Carvana, a company that was being touted as a way to reinvent the car business. It’s fallen 98% in roughly a year... and is on the verge of bankruptcy.
Many more former tech darlings, like Arrival (electric cars), Vapotherm (healthcare), and Porch (home buying and selling), are also all down more than 95% in the past year.
But here’s the really scary part...
According to our long-time partner Bill Bonner, these collapses and bankruptcies are just getting started.
In fact, Bonner says the next big bankruptcy and next big collapse is likely to come from a place few people are even thinking about right now.
You’re unlikely to hear this message anywhere else. Click here to view it for free, and to learn more about Bonner's FOUR critical steps every American should take immediately to prepare for this surprising fall.
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New Report Suggests Wash Trades Accounted for 58% of NFT Volume in 2022 |
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| As we seem to find again and again, when it comes to crypto, things aren’t always what they may seem on face value.
According to a new Dune dashboard and analysis from @hildobby, the NFT market may have a real crisis on its hands.
That’s because “wash trades”, or trades where the buyer and seller are the same or colluding with one another, are much more prevalent in the NFT market than anybody thought.
Wash trading has been illegal in the US since the 1936 Commodity Exchange Act (CEA), but crypto and NFTs, being unique digital assets, exist outside of this framework. Wash traders have taken full advantage of this lack of regulation in crypto, with some estimating that wash trading accounts for up to 95% of BTC spot trading volume.
NFTs are particularly prone to wash trading. In the saturated NFT marketplace space, platforms have relied on token rewards for active traders to draw attention and market share away from competitors. This is perfect for wash traders, who can simply trade the NFT between their own wallets and collect token rewards for each trade. It’s risk-free profit as long as the value of the rewards is greater than the gas fees.
A Mirage
It’s well known that NFTs are plagued by wash trading, but nobody truly understood how bad the problem was until the Dune dashboard was released.
According to the dashboard, wash trades constitute: - $30 billion in total volume
- 44% of all NFT trading volume
- 58% of NFT trading volume on Ethereum in 2022
- 98% of NFT trading volume on LooksRare
- 86% of NFT trading volume on X2Y2
- 65% of NFT trading volume on Element
This is obviously bad news for JPEG connoisseurs. NFTs are already in a brutal bear market, with volume far below the 2021 peaks. And now we see that 58% of that already depressed trading volume is fraudulent?
Ouch.
Unfortunately, there is not much that NFT marketplaces can currently do to stop wash trading. Removing token rewards is a possible solution, but in the competitive NFT marketplace space, it is impractical. Regulation is another fix, and will likely come at some point in the future, but nobody knows when that is.
For now, the revelation that much of the NFT market is fraudulent does not inspire confidence that a price turnaround is coming anytime soon. If you want to gain exposure to NFTs, it is probably best to stick to the blue chips: Punks, Apes, and Penguins, at least until the market flips bullish again.
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| Ladies and Gentlemen, we got him.
That was the reaction in the Mango Markets discord as exploiter and lover of “highly profitable trading strategies” Avi Eisenberg was put in handcuffs in Puerto Rico.
The Arrest
Eisenberg is officially facing charges of commodities fraud and manipulation for his role in the Mango Markets exploit.
In the exploit now infamously known as a “highly profitable trading strategy”, Eisenberg took a huge position in Mango’s MNGO token, artificially pumped up the price of MNGO, and then borrowed against his position, withdrawing the entirety of Mango’s liquidity and earning himself a cool $110 million.
Eisenberg believed he did nothing wrong because the exploit was done using “legal open market actions using the protocol as designed”.
Apparently, the FBI and the Southern District of NY disagree.
A Complex Issue
We are torn on how we feel about Eisenberg’s arrest.
On the one hand, this is a victory for justice. Eisenberg is no Saint. In addition to the Mango market manipulation, he has rugged millions of dollars from Fortress DAO investors and attempted to attack the DeFi lending platform Aave. The man should probably be in prison.
But, we’re not sure that his arrest is ultimately good for DeFi. The Mango exploit was only possible because of Mango’s poor design. Our concern is that if “exploiters” like Eisenberg are arrested, a horde of low-effort and poorly designed protocols will follow because it is people like Eisenberg who keep the protocols on their toes.
An absence of those people will prove costly once crypto goes mainstream and attackers much more sophisticated than Eisenberg take notice.
It’s a complex issue without a good answer, but it’s something that the crypto industry will have to grapple with over the coming years.
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