The issue related to the failure of Genesis and the closure of the Earn program on the Gemini crypto exchange is coming to an end.
Indeed, Judge Lane approved the bankruptcy plan, thus giving the green light for the repayment of credits.
Genesis and Gemini’s Earn service on the crypto exchange
Genesis Global Capital went bankrupt in 2022, following the bankruptcy of FTX, and among its creditors was also the crypto exchange Gemini.
As a consequence of Genesis’ failure, Gemini had to shut down its Earn program, leaving its clients without access to their funds anymore.
Yesterday’s ruling finally paves the way for solving the problem, especially regarding Gemini’s creditors.
Following the publication of the judgment, Gemini released a statement in which they effectively thank the judge and highlight how this judgment has no impact on the overall agreement between Gemini, Genesis, and other creditors.
The return of credits
Judge Sean Lane ignored both the objections of Genesis’ parent company, DCG, and those of the Genesis Crypto Creditors Ad Hoc Group and the Office of the United States Trustee, and ruled in favor of the plan that provides for the repayment of approximately 3 billion dollars to creditors.
The approved plan, however, does not provide for the bulk return of all credits, but a multi-phase process that will allocate resources to creditors based on the denomination of the credits, with dollar credits being returned before crypto credits.
Furthermore, the judge has decided that dollar creditors will be refunded 100% of the value of their credits, thanks to this precedence, while crypto creditors will only receive the remaining amount.
Genesis: the crypto exchange returns funds to Gemini Earn creditors
Regarding the return of credits to Gemini Earn creditors, they will start receiving refunds as early as May, but they will only receive about 97% of the funds owed, at least initially.
However, it should be noted that refunds will be in cryptocurrencies, so in fact they could also receive funds with a higher value than they had at the time they were blocked. In other words, they will receive less funds, but probably of higher value than the value of the credit at the time of the bankruptcy.
Crypto Failures
This methodology is common to many crypto failures.
When a user who owns cryptocurrencies held in custody at an exchange, or any centralized platform, is prevented from withdrawing their funds due to insufficient funds to meet all withdrawal requests, the platform is effectively going bankrupt.
In other words, since withdrawals are requests for debt repayment, blocking withdrawals corresponds to unpaid debt, and this triggers insolvency.
However, bankruptcy regulations provide that the calculation of debts, or credits of users, be made in fiat currency.
Almost always from the moment of failure to the moment of refund several months, or even many years, pass, and in the meantime the market value of cryptocurrencies varies.
If it varies as it goes up, the overall value of the cryptocurrencies still held by the failed platform can even exceed the overall value of the debt at the time of the bankruptcy as it happened in the famous case of the failed Mt.Gox exchange 10 years ago.
Returns in fiat or crypto
For example, regarding the bankruptcy of FTX, the bankruptcy trustee has opted for a refund of all funds in fiat currency.
However, in that case there was no choice, since the assets owned by the bankrupt company were mostly cryptocurrencies, while in large part they were other types of assets that were sold by the bankruptcy trustee in order to cash in fiat currency.
In this way, the failed exchange only had more dollars to return, but with the possibility of returning to creditors 100% of the value they had in custody on the exchange at the time of the failure, in November 2022.
Instead in other cases, like Mt.Gox or Genesis, a portion of the credits is returned in fiat currency, but another portion in cryptocurrency.
Usually in these cases, creditors in fiat currency receive 100% of the amount of their credit, calculated at the time of the bankruptcy, while others receive a smaller amount of cryptocurrencies than they had in custody at the time of the platform’s closure.
However, since many cryptocurrencies are increasing their market value over the long term, even if they receive fewer cryptocurrencies than they are due, the ones they receive may have meanwhile increased their market value measured in fiat currency compared to what they had at the time of the failure.
In some cases, such as Mt.Gox, the increase in value over time is such that the crypto assets that creditors will receive will have a higher value than all the assets they had on the platform at the time of closure, even if they will receive a much smaller quantity.
In the case of Gemini Earn, they will receive back 97% of the assets, but with a significantly higher market value.
