Marketing materials depicted a tantalizing opportunity: Users of Gemini—the cryptocurrency exchange founded by identical twins Cameron and Tyler Winklevoss—could hand over their digital assets to a product called Earn. The assets would then be loaned out, generating returns as high as 7.4 percent per year. Feeling nervous? Gemini promised investors they could redeem their crypto “at any time…plus the interest you’ve earned!” To some, this gave the impression that their money was safe.
That apparently wasn’t the case. On Nov. 16, the company announced that amid fallout from the crypto exchange FTX, its lending partner, Genesis, had “paused withdrawals,” thereby locking up customer assets. The Financial Times subsequently reported that Genesis owed Gemini’s clients a staggering $900 million.
Multiple former Gemini employees told The Daily Beast that the company downplayed Earn’s riskiness from the outset.
“Gemini definitely sold it as like, ‘It’s hassle-free. It’s easy. Get your crypto back right away, no delays,” said Nick Fuhrmann, who worked as a senior data engineer at Gemini until November 2020, while the product was being developed. “It kind of came across as less of a risk, at least to me.”
Even Fuhrmann, whose work in the industry presumably made him a more sophisticated crypto investor, said he underweighted the risks of Earn when he deposited his assets into the program. Now, he too is waiting to see what will become of his money.
A second former employee argued that the entire point of Earn was to find a new revenue stream for the company, even if it put customers at risk.
“The business makes money on fees, so how do you get more fees? You invent a new product,” he said. “I think that was the overall sentiment inside the company.”
The employee said he didn’t work directly on developing Earn. When the product finally launched in February 2021, he said, he and other employees saw the terms and conditions for the first time. “[We] were like, “Holy shit, are you fucking kidding me?’” he said.
Those terms outlined how users would be loaning their assets on “an unsecured basis,” meaning that borrowers were “not required to post collateral” in case of a downturn or default. The agreement also detailed numerous other risks: funds were not insured, they might be lost forever in the case of error or fraud, and Gemini couldn’t actually guarantee specific rates of return.
Users agreed to indemnify Gemini “from any loss or liability,” except for cases meeting the high bar of gross negligence or willful misconduct. Meanwhile, the company took a fee, ranging from negligible to 4.74 percent, for facilitating the loans. (A press release announcing the program disclosed that funds would be uninsured, though other potential drawbacks weren’t highlighted.)
Early on, Gemini declared on the homepage for Earn that it had vetted borrowers like Genesis “through our risk management framework which reviews our partners’ collateralization management process.” The page noted that there “is always a risk in investing,” but offered additional assurances: “On a periodic basis we will conduct an analysis of our partners’ cash flow, balance sheet, and financial statements to ensure the appropriate risk ratios and healthy financial condition of our partners.”
Marketing materials reviewed by The Daily Beast also projected a rosy outlook. One email to early enrollees included a steep graph meant to illustrate users’ potential earnings. “Of course people are going to gravitate to 7 to 9 percent [yields] and not ask questions,” a former employee said.
Some prospective investors did identify Earn’s risks. One Reddit thread published two years ago included dozens of comments about the terms and conditions.
“Their lay explanation makes it sound like it’s just free money, and then you try to activate it and they smack you with the legalese about points that were never mentioned anywhere before…saying that ‘lol this could disappear tomorrow & ur fukd’ with bigger words,” one person wrote.
Another user piled on: “You take all the risk and hopefully we can give you 3.05 [annual percentage yield]. If not, fuck we are not responsible.”
But not everyone saw the hazards. One optimistic commenter cheered the potential returns, writing, “This looks like a no brainer to me. I trust Gemini enough to be buttoned up…regardless of whatever [terms of service] items people are discussing here.”
Gemini did not respond to requests for comment, though the company has publicly told Earn customers it is working on a resolution, declaring that “returning your funds is our highest priority and we are operating with the utmost urgency.” Genesis declined to comment to The Daily Beast.
The Winklevoss twins, perhaps better known as the Winklevii—a nickname that caught on following their portrayal in the 2010 Facebook biopic The Social Network—are two of the most recognizable faces in crypto.
Last summer, amid a broader crypto industry downturn, their reputation took a hit in the eyes of some current and former staffers, when Gemini laid off dozens of employees. The brothers, meanwhile, were busy belting out cover songs with their self-declared “hard-hitting” band, Mars Junction.
“They laid off 10 percent of their staff,” a former staffer told The Daily Beast at the time, “and then they went on tour with their rock band.”
In that article, employees also recalled concerns about Gemini’s corporate strategy, including over-hiring and launching products that boosted revenue but may not have improved customers’ lives.
“Everything except the Gemini credit card seemed a little fucky,” a former staffer told the Beast this week. “And that credit card only felt more reputable because Mastercard was on board.”
A separate ex-employee defended the business, even with the issues at Earn. “If you’re an investor of any kind, you’ve got to do your own research,” he said.
Gemini is now seeking to retain customer trust. The company launched a webpage that houses regular updates about the Earn debacle, and Cameron Winklevoss tweeted that it has also formed “an ad hoc committee with other creditors” to fight for a resolution. The law firm Kirkland & Ellis has been brought on to help.
David Silver, an attorney who represents crypto investors, argued that Gemini is obligated to ensure a favorable outcome. “I believe, legally, ethically and morally, that Gemini can and should make its users whole,” he said.
Source: The Daily Beast
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