Bankrupt BlockFi Dismissed Credit Warnings | Sam Bankman-Fried Will Testify Before Congress

GEMINI CUSTOMERS PLEAD FOR LOST FUNDS

The Winklevoss twins promised a “real return” for users of their cryptocurrency exchange who signed onto its lending program Gemini Earn. Launched in early 2021, it was part of a wave of crypto lending businesses–along with BlockFi, Voyager Digital and Celsius–promising customers annual returns of “up to 7.4%” on their crypto deposits. Now those investors are owed $900 million as the contagion that began with the collapse of Gemini’s rival FTX spreads. The platform, which twins Tyler and Cameron Winklevoss cofounded in 2014 and run together, cultivated a reputation as a safe, U.S.-based alternative to crypto’s offshore exchanges. Gemini’s customers are furious to discover that their money–like the funds of FTX users–has seemingly gone up in smoke.

Gemini’s earn program was indirectly ensnared in the FTX collapse by way of crypto lender Genesis, which was a key partner for Gemini’s yield program. Genesis’ lending arm, Genesis Global Capital, froze customer withdrawals on November 16, citing “unprecedented market dislocation.” Reuters reported that the company had said in a letter to clients Wednesday that it is working to preserve clients’ assets and strengthen liquidity, adding that it would take “weeks rather than days” to form a plan.

On Tuesday, Cameron Winklevoss announced on Twitter that Gemini had formed a Genesis creditors’ committee to try and recoup customers’ lost money and hired white-shoe law firm Kirkland & Ellis. “Returning your funds is our highest priority and we are operating with the utmost urgency,” Winklevoss said.

BANKMAN-FRIED, REVERSING COURSE, AGREES TO TESTIFY TO CONGRESS

Sam Bankman-Fried accepted an invitation to appear before Congress on December 13, forestalling possible subpoenas to compel him to do so. In a post on Twitter on Friday, the former CEO said he would “shed what light I can” on what he thinks led to “the crash” of his corporate empire and also address the solvency of its U.S. subsidiary, ways to “return value” to customers internationally, and his “own failings.”

The request came from the House Financial Services Committee. There is also a pending invitation from the Senate Banking Committee the next day. Both committee chairs have said they would consider subpoenas to require Bankman-Fried’s attendance if he did not come willingly.      

Source: Forbes Digital Assets, powered by Nomics.  Prices as of 4:00 p.m. on December 9, 2022.

BLOCKFI EMPLOYEES WARNED OF CREDIT RISKS BUT SAY EXECUTIVES DISMISSED THEM

In its bankruptcy filing last week, the New Jersey-based crypto lender attempted to paint itself as a responsible manager hit by plummeting crypto prices and FTX’s collapse. But current and former employees told Forbes that risk professionals’ concerns were dismissed by executives preoccupied with delivering growth to investors.

As early as 2020, employees were discouraged from describing risks in written internal communications to avoid liability, according to one former employee. Under competitive pressure, BlockFi began lending to clients with less collateral than publicly stated and without informing customers of the risk involved with interest accounts, according to the SEC order, which resulted in a $100 million fine for the company. In addition to lowering its collateral requirements, BlockFi’s credit research had flaws, former borrowers say. Borrowing ability was based on their assets, but BlockFi failed to investigate the size and quality of those holdings. Like Voyager and other crypto lenders, BlockFi accepted unaudited balance sheets from hedge funds and proprietary trading firms, former borrowers assert, leaving room for manipulation by those taking loans.

When FTX folded in early November, BlockFi lost its lending backstop and could no longer meet fresh waves of withdrawal requests.      

APPLE IPOD DESIGNER TAKES ON HARDWARE WALLET

Ledger, a manufacturer of hardware devices for storing digital assets, has teamed up with Tony Fadell, best known for creating the iPod, iPhone and Google’s Nest thermostat, on its new wallet called Ledger Stax. With it, the company is striving to not only capitalize on the movement toward self-custody but reinvent the whole crypto culture.

Like its predecessors, Ledger Stax enables users to manage cryptocurrencies and non-fungible tokens (NFTs) while retaining full control of the assets with private passwords known as keys. Novel features of the crypto wallet include a significantly enlarged display that covers the unit’s entire front and the spine, enabling users to view complete transactions at a glance; an integrated magnet, which allows it to be stacked with similar devices–think bitcoin stored on one, NFTs on another—improved battery life (weeks or even months on a single charge compared to eight hours on Ledger Nano X); and wireless charging.       

WORLD CUP NFTS STUMBLE AS GAME UPSETS CURB ARDOR

Despite the excitement for each match, fan tokens have borne the brunt of unexpected losses and upsets. Prices and trading volumes for these tokens, which work like loyalty or reward tokens, providing added perks to those who pay the most, have decreased since the start of the tournament.

The Argentine Football Association Fan Token, which was the first major national soccer team NFT, was the biggest pre-play winner. With a current market capitalization of more than $11 million, the token’s price peaked at $8.40 in the days before the World Cup, double its worth from a month before ($4.40). The value has since fallen to $2.74, even as the team makes its way to the quarterfinals. Following a loss against Morocco in a surprising upset in Tuesday’s round-of-16 match, the token for Spain’s National team has suffered the most, losing 55% of its value. Portugal’s fan token has also suffered from the team’s performance, despite the squad’s six goals against Switzerland to pass onto the quarterfinals. The token peaked at $6.25 in the days before the start of the tournament but has fallen to $2.25 ”      

ELSEWHERE

Binance’s Bitcoin Reserves Are 101% Collateralized, According To A Report By Auditor Mazars [The Block]

Canada’s Biggest Pension Plan, CPPI, Ends Crypto Investment Pursuit [Reuters]

FTX Held Talks With Taylor Swift Over $100 Million Sponsorship Deal [Financial Times] 

Nina Bambysheva
Reporter
Forbes Money & Markets

Steven Ehrlich
Editor 
Forbes CryptoAsset & Blockchain Advisor

Follow us on Twitter & Facebook