Digital Currency Group works on fair recovery for Genesis creditors

Digital Currency Group (DCG) has reached an in-principle agreement to recover Genesis Global’s creditor funds in an attempt to settle claims that surfaced following its bankruptcy.

Genesis Global Holdco, LLC , along with two of its lending business subsidiaries, Genesis Global Capital, LLC and Genesis Asia Pacific Pte. Ltd., had filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in January 2023.

The DCG seeks to resolve the financial challenges of its crypto lending subsidiary, Genesis, with the document submitted on Monday to the U.S. bankruptcy court in the Southern District of New York.

According to the bankruptcy filings, Genesis owed over $3.5 billion to its top 50 creditors. Gemini, the exchange founded by the Winklevoss twins, was one of them.

Gemini offered an “Earn” product to crypto lenders in partnership with Genesis. Here, customers sent crypto to Gemini in the hopes of earning a yield. The collaboration gave users the option to lend Genesis their cryptocurrency holdings in return for the promise of interest payments. The Winklevoss twins claim that Genesis owes it $900 million through the now-defunct Earn program.

Post the filing of Genesis’ bankruptcy, Cameron Winklevoss threatened legal action in his response to the news, accusing CEO Barry Silbert of “fraud”. He also demanded him to step down as CEO unless “a fair offer to creditors” was made by DCG to resolve the issue.

As per the recently reached in-principle agreement, unsecured creditors may receive a recovery of between 70% and 90% in U.S. dollar equivalent. This could potentially resolve the lingering disputes while achieving a fair recovery for creditors.

It is anticipated that the recovery on an in-kind basis would range between 65% and 90%. This would depend on the exact percentage contingent on the denomination of digital assets involved.

Another important component of the agreement is in resolving the existing obligations and liabilities of the DCG. This includes approximately $630 million in unsecured loans due in May 2023 and $1.1 billion under an unsecured promissory note due in 2032.

The reimbursement is set to take place in two stages, as per the agreement: an initial repayment of around $328.8 million, scheduled for a two-year maturity, and a subsequent repayment of $830 million. The latter has a maturity period of seven years.

An agreement for a further $275 million payment has also been made by the DCG. To be done in four equal instalments, these payments will take care of the maturing debts connected with the unsecured loans due in May 2023. It is scheduled to be made after the partial repayment agreement date.

However, Genesis’ former partner Gemini has yet to support the in-principle agreement. The Ad Hoc Group of Genesis’ lenders have not supported the deal either. The filing noted-

“Although the mediation has terminated, constructive discussions with the Ad Hoc Group and Gemini regarding the aforementioned agreed-upon deal in principle are ongoing and the parties remain committed to continuing these discussions with a goal of achieving a fully consensual plan.”

DCG has stakes in over 200 crypto companies, including crypto exchange Kraken and stablecoin issuer Circle. This wide involvement of the digital assets company has been a concern for the broader crypto market.

On top of that, Genesis’ parent company also runs the world’s biggest Bitcoin fund – Grayscale Bitcoin Trust. The fund has been under increasing scrutiny over the safety of its reserves since the infamous collapse of FTX.