A Grim Outlook for DCG

Contagion comes for Barry; is Justin Sun next?
Bankless Bankless Jan 7, 20236 min read

Dear Bankless Nation,

Fresh contagion fears stoked the crypto space this week as DCG’s situation grew murkier and drama at Huobi raised new alarms.

Blood is in the water.

For our weekly recap this week, we dig into:

  1. Another Big Week for Barry
  2. SBF, not guilty?
  3. Trouble at Huobi?
  4. More CeFi Drama
  5. Bear Market Blues

- Bankless Team

📅 Weekly Recap

Here’s a recap of the biggest crypto news from the first week of January.

1. Another Big Week for Barry

Let’s take stock on where Gemini is.

Gemini, the crypto exchange, has an Earn program which lets customers deposit money in exchange for a ~7% yield. That sweet yield comes from the prime brokerage firm Genesis Trading (owned by Digital Currency Group) which was managing those funds on behalf of Gemini customers, but also lending those funds to FTX.

When FTX collapsed, Genesis was exposed to a liquidity crunch. “Is Genesis bankrupt?” was the question on everyone’s minds. This leaves Gemini Earn retail customers holding the bag. Earn was halted on November 16.

This week sees Gemini CEO Cameron Winklevoss penning a particularly provocative open letter to DCG’s CEO Barry Silbert. Winklevoss alleges that they “have done everything we can to engage with you in good faith” but “it is now becoming clear that you have been engaging in bad faith stall tactics”.

DCG owes Genesis ~$1.675 billion. This is money that Genesis owes to Earn users and other creditors. You took this money - the money of schoolteachers - to fuel greedy share buybacks, illiquid venture investments, and kamikaze Grayscale NAV trades that ballooned the fee-generating AUM of your Trust; all at the expense of creditors and all for your own personal gain. It is now time for you to take responsibility for this and do the right thing.

DCG reportedly shut down its wealth management division this week.

Meanwhile, Genesis has announced a cut of 30% of its staff, down to 145 employees. DCG/Genesis is also allegedly under investigation by the SEC.

Gemini COO Noah Perlman is also calling it quits.

2. SBF, not guilty?

In what seems to be gearing up to be the court case of the decade, Sam has plead “not guilty” in a New York federal court Tuesday to the bouquet of wire fraud charges he faces. This, despite his comrades Alameda CEO Caroline Ellison and FTX co-founder Gary Wang pleading guilty.

Why is Sam rolling the dice? It’s possible Sam was offered a terrible plea deal, and is holding out for a better offer. Perhaps he has friends in high places that would get him out of this pickle. David Morris of CoinDesk has a comprehensive write-up.


A bunch of Alameda wallets were seen transferring funds totaling ~$1.7M of crypto into crypto mixers last week on December 28, days after Sam was released on bail.

Sam denies being the one behind these activities.

Lewis Kaplan, the U.S. district judge overseeing Sam’s case, isn’t taking any chances and is formally blocking Sam from accessing FTX assets.

Finally, Sam’s trial date is set for October 2, which makes for another nine glorious months of the Sam Bankman-Fried saga. All praise the efficiency of the U.S. justice system.

3. Troubles at Huobi?

The Seychelles-based crypto exchange Huobi is having some troubles of its own. Nansen data is showing record high net outflows of $~94M of USDC, USDT and ETH in the last week.

Coupled with Huobi announcing layoffs of about ~20% of its staff, rumors of insolvency are kicking off.

The exchange is apparently making it mandatory for employees to take salaries in stablecoins, and also shut down its internal employee communication channels to “quell a rebellion [which has] taken a toll on its exchange token and trading volume”.

Huobi’s exchange token HT is down 9.3% to $4.66 in the last seven days. This is particularly distressing. According to CryptoQuant's "clean reserve" metric which looks at how much an exchange’s assets is represented by its own token, Huobi currently has 59.64%.

Justin Sun, the face behind Huobi, has cashed out ~1.5B in fiat stablecoins since October.

But hey, here’s Justin Sun with some words of encouragement that will assuage the fears of absolutely nobody.

4. More CeFi drama

Bankruptcy judge Martin Glenn has ruled that ~$4.2B of customer’s deposits in Celsius’s interest-bearing product belong not to the users, but the firm. This stems from a “contract law issue” that stipulates there was a valid contract between Celsius users and Celsius.

New York Attorney General Letitia James announces a lawsuit against Celsius CEO Alex Mashinsky for “defrauding hundreds of thousands of investors”.

Coinbase is being fined $50M by the New York Department of Financial Services and forced to invest another $50M into compliance for failure to meet compliance requirements.

"Coinbase lacked sufficient personnel, resources, and tools needed to keep up with these alerts, and backlogs rapidly grew to unmanageable levels"... "By the end of 2021, Coinbase had a backlog of unreviewed transaction monitoring alerts grew to more than 100,000 (many of which were months old), and the backlog of customers requiring enhanced due diligence exceeded 14,000."

Finally, the SEC is voicing its disapproval for Binance.US to buy the now-bankrupt crypto lender Voyager, doubting the “ability of Binance US to consummate a transaction of this magnitude”.

5. Bear market blues

The crypto payments company Wyre is shutting down. Bolt Financial was set to acquire Wyre in a $1.5B deal last September, but that deal didn’t come through.

Juno Finance, the crypto ramp company and a partner of Wyre, has promptly deactivated crypto buys on their platform and are advising customers to self-custody for now.

Crypto bank Silvergate Capital is another exposed partner of FTX, suffering an $8B outflow of customer deposits in 2022 Q4 from $11.9B to $3.8B. Silvergate announced a cut of 40% of its staff (~200). Its stock sank 40%+ Thursday after the announcement.

Other news:

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