Dual cryptocurrency exchange Winklevoss has lured investors to its dollar-pegged GUSD stablecoin with the promise of attractive returns. These funds are now frozen and the demand for Gemini dollars is declining.
Last December, Daniel Zukic decided to invest $10,000 in Gemini Dollars (GUSD), a stablecoin operated by cryptocurrency exchange Gemini. Gemini Earn, the company's lending program, has offered Tsuchichi a juicy 8% yield on his digital tokens.
“This was the highest earner in the Gemini Earn program. It just didn't make sense," said Zukik, a New York native. "[Its value] doesn't change because it's their stable currency. I thought why not put the money in there?
On Nov. 16, Gemini announced that the crypto lender it had partnered with under the Gemini Earn program, Genesis Global Capital, had stopped withdrawing clients, leaving clients like Zukic wondering if they would ever see their money again. . Gemini Earn's total client debt is about $900 million, according to the Financial Times , a source confirmed to Forbes last week. The withdrawal ban came after Genesis suffered more than $1.8 billion in bad debt issued by bankrupt cryptocurrency companies, including hedge fund Three Arrows Capital (which went bankrupt in July) and notorious hedge fund Sam Bankman-Fried Alameda Research.
When Gemini launched stablecoin GUSD in September 2018, it promised users a “trusted and regulated” digital dollar that would combine “the reliability and price stability of the US dollar” with “blockchain technology and US regulatory oversight” . Stabilcoin Gemini was a major selling point for Gemini Earn, which launched in February 2021. The Gemini Earn website had an entire section promoting GUSD, stating that clients can expect to “beat the inflation rate by earning on stable currencies” .
Gemini insists that there is no liability for those investors who bought Gemini dollars and lent them through Genesis. Gemini sent an email to its customers last night, December 15, updating the dispute resolution clause in the terms of service to move future disputes to a separate arbitration forum. Previous documents will not be affected.
Demand for Gemini dollars has declined. Since Nov. 9, around the time of the FTX crash, GUSD holders have traded about $250 million of their Gemini dollars for dollars or other cryptocurrencies, according to data from CoinMarketCap.
“Everything traded as GUSD as a safe, stable, mutually supportive asset,” said Sarah, a Brooklyn-based investor who has been borrowing $20,000 in GUSD through Gemini Earn since January when Gemini unveiled its annual Gemini earnings. The dollar exceeds 8%. “I've seen the returns they offer on some of their coins, especially the GUSD coin,” explains Sarah, who asked Forbes to use a pseudonym for fear of backlash from her employer.
The yields available for Gemini Dollars have often been the highest for the dozens of tokens available for loan through Gemini Earn, as seen in the archive links on the Gemini Earn website. Gemini appears to have launched GUSD for its Earn product in June 2021, with an annual rate of 7.4%, the highest of any coin. This figure rose to 8.05% in September and remained at that level until April of this year, after which it fell to 6.9% before inexplicably falling back to 7.15% in July. (That same month, Genesis filed a $1.2 billion lawsuit after losing that money to cryptocurrency hedge fund Three Arrows Capital.)
In November, when FTX started to plummet, Sarah considered withdrawing her GUSD from Gemini and converting it back to dollars, until Gemini convinced her not to. In a Nov. 14 email, the company assured him and other customers, "Gemini is not affiliated with FTT or the Alameda brand and has no material connection to FTX." The subject line of the email reads, "Gemini is all about trust, security, and compatibility." Two days later, Gemini announced that all Gemini Earn funds had been frozen.
“I saw this letter and changed my mind about withdrawing funds. I would literally withdraw it,” said Sarah, who has no money on the Gemini exchange without a salary, whose crypto deposits, of course, referred to Gemini. (Earnings are not mentioned in the email). "They must have known something was wrong and tricked us into saying everything was fine," she says.
A comment emailed by Gemini on Nov. 14 at the time of posting could not be reached.
Sarah admits, like others who spoke to Forbes , that she "didn't necessarily read the fine print" of Gemini Earn's terms and conditions, which explained that her Gemini Dollars and other tokens offered by Genesis are uninsured or insured. Instead, "I read in huge letters that they're actively sold everywhere," she says. Gemini Dollar's terms of service section states: "If you are not a customer [sic] of Gemini, by receiving or using Gemini Dollar, you acknowledge and understand that receiving or using Gemini Dollar is not between you and us creating or represent ."
Cameron and Tyler Winklevoss, the twins who founded Gemini in 2014 after investing millions of dollars in bitcoin from their Facebook lawsuit, were looking to invest more in GUSD in the weeks before Gemini Earn halted withdrawals. In late September, Tyler announced a new partnership with MakerDao, a popular decentralized finance app. GUSD holders can pledge their Twin Dollars in exchange for an equal amount of Dai, MakerDao's stablecoin, which also has a peg of $1.
A few weeks later, MakerDao increased the number of Gemini dollars that can be traded for Dai from $60 million to $500 million. One wallet then moved 460 million GUSD into MakerDao's pool in exchange for Dai, then swapped those Dai for another stablecoin before converting those tokens into dollars, according to the wallet's transactions on Etherscan. Approximately 84% of all Gemini dollars - approximately $590 million - are currently stored in the MakerDao protocol. This initiative buoyed GUSD's market capitalization due to customer attrition.
Natalie Ricks, communications manager at Gemini, told Forbes in an email that "Gemini hasn't invested GUSD 500 million in the MakerDAO protocol," that "third-party participants have moved quickly" around the 500 mark. million dollars and that all of its coins GUSD stables are backed by one-to-one US dollars. The twins did not respond to questions about whether the wallet in question is controlled by the Winklevoss twins or a third party connected to the twins.
As the Winklevii ponder their next step in the cryptocurrency winter, Gemini Earn users are starting to lose hope after a month of poor connectivity. On Dec. 13, the company posted a three-word message — "No major updates" — that sparked backlash on Twitter.
"We literally bought a Gemini coin and now they're like, 'Sorry, we're not participating,'" says Zukic. "It just doesn't make sense."
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An earlier version of this article stated that sections of Gemini's terms of service regarding Gemini's relationship with Gemini Dollar were changed as part of the 12/15 term of service change, but no.