Unchained - DCG's Dilemma: Should It Sell Its GBTC Holdings to Repay Gemini? - Ep. 442

Starting point is 00:00:00 Hi, everyone. Welcome to Unchained, your no-hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering Crypto seven years ago, and as a senior editor of Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the January 13th, 2023 episode of Unchained. Did you know that Unchained offers a daily digest of the top stories in crypto? To stay up to date on everything going on in the world of Web3, visit Unchained Crypto.substack.com. With the Crypto.com app, you can buy, earn, and spend crypto in one place.

Starting point is 00:00:37 Download and get $25 with the code, Laura, link in the description. Today's guest is Karim Dandashi, Portfolio Manager at XBTO Group. Welcome, Karim. Hi, Laura. Thank you for having me. There's been quite the ongoing feud between Gemini and Cryptolender Genesis, as well as its parent company DCG. Just to give some background for people who haven't been following this, although we have covered it on the show,

Starting point is 00:01:05 Gemini has a program called Earn that has been offering yields to its customers. And in order to earn that return, it's been lending those assets to Genesis. But because of the numerous bankruptcies that are happening, Genesis is having at minimum liquidity issues and quite possibly and likely insolvency issues, so it cannot pay back Gemini-earned customers. Last week, Cameron Winklevoss sent a public letter

Starting point is 00:01:35 to Barry Silbert, the head of DCG, giving him a deadline of January 8th, which was Sunday, to publicly commit to working together to solve this problem. The deadline came and went, and Cameron just sent another letter. So, Karim, can you tell us what it is that he said and why this letter was significant?

Starting point is 00:01:55 Sure. Absolutely. Yeah, it's very interesting because this letter, unlike the first, is very pointed. It's some big allegations in there in terms of what's been going on at DCG and Genesis. And one thing that's very interesting in particular is, I think within the first line of the letter, he almost directly states fraud as being kind of the root cause of all of this. you know, from my perspective, I try not to think about it from that standpoint and rather kind of look at what has gone wrong and what are the issues that Genesis and DCG currently face. And I think the reality is that, you know, the legal process will kind of ensue and ultimately that's where we'll get more clarity. But without a doubt, you know, what's been put forth to the DCG board is, is pretty pointed. And what I found more interesting is Barry's response. Okay. And before we get to Barry's response, I just wanted to clarify. when you said that the legal process is going to bring more clarity,

Starting point is 00:02:53 what kind of legal process are you referring to? Well, it's clear that at this point, there is lawsuits ongoing and there's a lot of concerns over what's gone on at DCG and Genesis. And I think the reality is that this is only going to get more and more focus over the next few weeks and few months as the resolution to what's going to happen to Genesis' creditors doesn't get resolved. And I think this really only puts DCG and Genesis in a tougher position to try to figure out their situation sooner than later. Then ultimately becomes a massive burden for all of the customers of Gemini, but all of the other creditors of Genesis as well.

Starting point is 00:03:32 All right. So let's now then talk about Barry Silbert's response. What did you find so remarkable about it? Yeah. I mean, there's a few things. And I think the reality is that not many people have actually seen the financials behind DCG. or Genesis for that matter. So, you know, any snippet that we get is really revealing.

Starting point is 00:03:52 And, you know, I think one thing that I found particularly interesting is as you scroll down through that note that he kind of sent to his board of directors, there's an FAQ section. And that FAQ section outlines a few numbers that I found really interesting. One that we already knew about, obviously, was a $1.1 billion promissory note that DCG wrote to Genesis with a 10-year maturity, which was meant to effectively take on the 3A liability that Genesis has. One thing that's very important to know about that is that, you know, this is a 10-year asset at this point for Genesis. So it's not a current asset. And another thing that, you know, we knew prior is that DCG has a $500 million loan from Genesis that is actually due in May in 2023, which I think,

Starting point is 00:04:45 A lot of, you know, analysts or people following this are keeping a close eye on because I think the reality is that that means some sort of liquidity situation is going to need to resolve itself by then, unless Genesis or DCG tries to find another way around this. All right. So earlier when I asked you about what you meant by legal process, you surprisingly didn't mention that you expected that Genesis would file for Chapter 11 bankruptcy, but that has been talked about a lot. So why is it that you didn't mention that?

Starting point is 00:05:15 It's interesting because I think the reality is, and you're in a situation where DCG has some levers to pull here, but the reality might be that those levers are kind of diminishing as time goes by. And so while it is a possibility that Genesis kind of gets forced into Chapter 11 in some way or another, it's hard to really say what the ultimate way out is here. but it's clear that DCG's choices are really, you know, shrinking pretty quickly. One other thing that I wanted to mention about that FAQ section in the DCG shareholder letter was that Silver also said that the $1.1 billion loan is not callable. Correct. Which is what a number of people had been concerned about and suggesting that if that were the case, then Genesis going under or filing for Chapter 11 would also cause DCG.

Starting point is 00:06:13 too as well. So what did that say to you? Because I think a lot of people thought that it was. So what does that mean to you about how it might be structured? Realizing that it's not callable ultimately means that it doesn't fix the liquidity issue at Genesis. The reality is that this is the promissory notes. Somebody showed, you know, showed me a meme yesterday, which kind of showed a paper napkin saying an I owe you of 1.1 billion, which I thought was amusing. But I think the reality is that when you realize that Genesis has $3 billion in creditors, and those creditors are all short-term creditors who effectively are asking for their money back, then the reality is that that asset of $1.1 billion, which is a 10-year asset at the day for Genesis,

Starting point is 00:06:59 can't really be monetized unless DCG puts up the cap. And the fact that there's no call option in there guarantees you the fact that this is a long-duration asset and nothing less. Okay. Yeah. And just to make clear for people, the amount that the Gemini earned customers are owed is $900 million. So that would obviously be an amount of money that would cover that. So one other thing that I wanted to ask about was Cameron Winkle Boss laid out a number of allegations that he was calling accounting fraud. And I wondered how credible you thought the claims in his letter were. I mean, I think the reality is that if anything is actually, if anything that's longer than a year is actually listed as current.

Starting point is 00:07:42 on the balance sheet, then that is problematic without a question. I'm not an accountant, so I don't really want to comment on what the legal consequences of that would be. However, what I will say is that, you know, as a risk manager and somebody who's kind of worked and fixed them for a long time, as a liability matching is a big thing. And that has big implications from that regard. And it's pretty clear at this point that, you know, that hole cannot currently be filled because that promissory note is a 10-year promissory note and not anything shorter than that. If I can add to that, you know, I think it's worth noting that we know that DCG has been

Starting point is 00:08:16 trying to sell off some of their assets. And I think it's worth thinking about how, you know, what does that really mean? Part of that could really mean that they're conscious that's there you might have to plug a hole and they might need to make those, you know, that payback that $1.1 billion sooner later or actually monetize, for example, that loss from 3AC, right, by covering it up with other assets and liquidity. Now, I think the reality is that we're going to be in a position where DCG and Genesis are going to have to, you know, empty their pockets and see what really makes sense in terms of plugging that hole. But being in this situation as it is right now with

Starting point is 00:08:55 creditors kind of sitting and waiting is not very sustainable. And the longer this goes on, it's going to become worse. All right. So in a moment, we're going to unpack a few more of the details around this really sticky situation. But first, quick word from the sponsors who make this show possible. Join over 50 million people using crypto.com, one of the easiest places to buy, earn, and spend over 250 cryptocurrencies. Spend your crypto anywhere using the crypto.com visa card. Get up to 5% cash back instantly.

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Starting point is 00:10:30 Hey, Jamal, you've been promoted to pack leader. Save the everyday with deals from Amazon. Back to my conversation with Kareem. So another thing, which you kind of alluded to, but I want to unpack it a little bit more, is this terminology of current. Because both Cameron and Very Silver have been using it in potentially different ways. I'm just going to quote from the letter that Cameron Winklevoss sent, he says, first, as a matter of generally accepted accounting principles and common understanding, a current asset refers to cash, cash equivalents, or other assets that can be exchanged into cash within one year.

Starting point is 00:11:16 A promissory note, with a principal repayment due in 10 years, falls outside the definition of a current asset by a country mile. Now, you might have seen also that after, you know, we saw then that Silbert responded with the letter, which said that the promissory note was not callable, Ryan Selkiske's. of Masari posited a theory that Silbert might be using a different definition of current and said that you can use the word current also to say like this borrower is meeting all payments on its loans, although as Ram Al-a-Wali pointed out in this case, there's only one payment, which will be the one in 2032. So do you think that that's what's going on here? And if so, is that kind of the obfuscation that Cameron Michael has to talk about?

Starting point is 00:12:08 I agree with Cameron in regards to how in accounting practices, current means something that's within a year. I've reread the tweets that Barry has put out, and at least the way I interpret it, I do think that what he's trying to state is that DCG is current, which basically means the loan is performing. But I mean, I think it's pretty clear that this, has, you know, various interpretations.

Starting point is 00:12:35 And I don't think ROM is necessarily wrong. I just think here, just a matter of how you interpret what's being said. But the way I looked at it is, you know, all he was trying to really communicate was that DCG is not currently late on any payments due to Genesis and basically say that DCG currently is fun. Oh, okay. So he's not saying that that should be counted as a current asset on Genesis' books. I would not interpret it that way, at least the way I kind of look at it.

Starting point is 00:13:09 But I think the reality is that anything on Twitter can be kind of misconstrued in different ways. But I would imagine that Barry is also advised not to put out something that would be misleading. And I think that would definitely be misleading because there's nothing about a 10-year promissory note that makes it current. Okay. Okay. So it seems like he's using a different definition. I think we're nitpicking here to be, to be, to be, to be honest, and that's really it.

Starting point is 00:13:36 But, but I mean, don't you think that that's exactly what's going on behind the scenes before they post all of these, that the lawyers are combing over everything? And I mean, I feel like parsing the language is probably useful. No, I think you're absolutely right. It's hard to really gauge some of the motivations and how people are thinking about it. I'm just kind of giving kind of the way I would look at it as somebody who's kind of worked in loans before is that using the terminology current on loans is is is uh is fairly common in terms of interpreting that uh the loan has no late payments and uh the the borrower is currently you know

Starting point is 00:14:18 not in default for example right right but but you also agreed about Cameron's definition of current aspect so so that then supports Ryan's theory Ryan Selkis theory that they're using this recurrent in two different ways. Okay. So at this point, what questions do you have for DCG or Barry Silbert or Genesis? Like, what do you think people don't yet know that would help determine either where to lay the blame or how this situation could potentially be resolved or how it might eventually be resolved? Of course. I'd like to see, I'd like to ask DCG for some sort of plan between.

Starting point is 00:15:01 the two entities, DCG and Genesis, as to how they look to fill these liquidity gaps. Because the reality is that we have an idea of what the assets are. We know what the liabilities are. We also know that those liabilities are going out the door. So the question is that your asset base, how do you monetize it? How do you monetize it so that you can pay back your creditors or at least come to the agreement with your creditors? And I think that's something that's really important.

Starting point is 00:15:25 And it's important to bear in mind that these are intercompany loans. So the reality is that when we're talking about Genesis, we kind of end up talking about DCG, about DCG because this promissory note, you know, I think, you know, while it does, it serves a purpose, the reality is, is that in a situation, you know, what's materialized over the last few months, that no longer cuts it, right? It was meant to kind of cover a hole and over the long run be repaid, but under a circumstance in which you have liabilities going out the door, you have to be a situation where you can monetize your assets so that you can cover those liabilities. All right.

Starting point is 00:16:04 Well, who knows how all of that will play up, but another wildcard here is that Bloomberg reported that federal prosecutors in the Eastern District of New York, as well as the Securities and Exchange Commission, are investigating the transfers between DCG and a subsidiary that people are positing is probably Genesis. And also looking into what it is that investors were told about those transactions. DCG says they don't know anything about this, but I was wondering what you think investigators would be looking for if that is the case. I think the goal here would probably be to understand to what degree the arm's length, arms length, I say, is that the nature of the promissary note is really conducted in, right? To what extent was Barry, for example, directly involved in, you know, constructing that loan, that promissory.

Starting point is 00:16:58 note to Genesis because I think ultimately that becomes a potential issue. It's also important to kind of note that when you kind of zoom out a little bit, this starts to look pretty ugly, right? We're talking Grayscale, another subsidiary of DCG, who obviously has GBT, which is kind of their big product and one of the most important revenue lines for DCG and its subsidiaries. One has garnered tons of attention. Three AC was involved, ultimately got liquidated, DCG has now a relatively large stake or 11% stake in GBTC. And it's kind of worth noting that this is their most valuable asset as, you know, a, you know, empire if you want to call it that.

Starting point is 00:17:41 So I think the reality is that you're in a position where the intercompany kind of relationships start to look fairly shading. And I think it's pretty standard for regulators to look into this stuff. It's worth noting that kind of when you look at traditional finance, there is tense, there needs to be kind of an arm's length nature and the way that companies deal with themselves even between subsidiaries. And that's going to be a sticking point here. And I think that's actually a lesson that we're probably that we can take away from in 2022. And what kinds of terms on that promissory note would kind of meet the standard of arms length and what kind of terms and conditions

Starting point is 00:18:20 would not? Sure. I mean, you know, the one that really sticks out to me is the interest rate on the loan interest rate was deemed 1%. Now, if I were to just look at DCG as a venture capital firm that has kind of, you know, exposure everywhere, quite a bit of concentration in terms of its exposures, especially into crypto, right? And then look at, for example, other crypto firms that do have bonds outstanding. One thing is clear is that 1% is not really the appropriate rate to quantify the credit risk behind DCG, especially 10 years out. So that's something that I would looking to kind of question because I have a hard time believing that 1% was really the right place of prices. But then again, from a legal perspective, I'm not sure exactly what those

Starting point is 00:19:06 rules would be in terms of what defines arms length or not. So as you alluded earlier, Genesis owes creditors more than $3 billion and DCG is exploring selling some assets from its venture portfolio to raise money. Do you think that strategy could be successful and get out of this pickle in time? Yes, I do think that that is, it is a potential solution. I want to caveat that, right? I think it's worth noting that a lot of their assets are venture capital investments, which at some point are marked at a certain valuation, but it's very possible and,

Starting point is 00:19:45 in fact, probably likely that those valuations are not, you know, marked to market currently. And it's also worth noting that, you know, typically a market when they know a participant's in trouble and has to sell, the market's not going to be very kind in terms of giving you the valuations you're looking for. So, you know, I think the fear, and this is something you might have brought up at the very beginning of this conversation is that, you know, liquidity issue, but could very well end up being a bigger issue, solvency issue at that. But do you also think that they could sell the venture investments in time to raise the amount of money they would need?

Starting point is 00:20:21 It's definitely possible. I mean, I think, you know, it's important to note that obviously we have the main maturity coming, so that it's only a few months away. So I would imagine that if they're going to get it done, it needs to be sooner to later. And to be frank with you, I would have liked to have seen this in December. I have an idea in my head as to how this gets resolved for DCG and Genesis. But, you know, I think the truth is that that's something that, you know, barrier DCG doesn't necessarily want to go on with or doesn't necessarily want to admit the situation

Starting point is 00:20:53 they're currently in, which I think ultimately only risks harming them over the next few months. And when you say that you have an idea of how this works out, is that selling the venture investments or what is it? Yes, partially selling the venture investments. I mean, it's worth noting that obviously they own 11% of GBTC. GBT trades at a 40% discount. in my mind, this whole thing has amounted to one very big GBT discount trade, which ultimately has ended up back into hands of the parent of the issuer of GBT,

Starting point is 00:21:28 which I think, you know, if I were to kind of interpret it in my own way, I would look at it as he's made a levered bet on his own product getting converted to an ETF. And it's unfortunate where we are right now, but it just doesn't look very good. You know, amidst all this, what do you think is likely to happen to gray scale? Very difficult to say. But I think the reality is that when you have a parent who's clearly in some sort of liquidity situation, especially if the genesis issues don't get resolved soon, then I think the reality is if the regulators are going to start asking questions and, and,

Starting point is 00:22:09 And I think at that point, you know, it's probably in the best interest of the shareholders to ultimately have a management company who's considered healthy and can take on a responsibility of managing GPDC. But, I mean, the reality is that it's kind of unclear how this plays out from here. It's also unclear because, you know, we know that the SEC is looking into DCG in Genesis, but, you know, we don't have further details to that. Okay, yeah. One other thing that doesn't look very good is that two board members who are quite prominent Glenn Hutchinson, Larry Summers, left. And that was actually back in November. So, you know, again, not really promising developments for DCG. I guess the only other thing that I'd like to ask you about is that there was another company, BitVavo, that revealed that DCG had offered to pay it at least 70% of the $300 million.

Starting point is 00:23:04 that it gave that a loaned to Genesis. But Bivavut refused that offer saying that Genesis does have the ability to repay the total amount within the agreed upon period. So what do you think of that development? I think it's interesting. I think the reality is DCG might be trying to work with creditors who could be willing to work with them and accept some sort of discount to the overall. borrowing. I think the reality is that it's not really panning out properly. And what

Starting point is 00:23:40 Bivavo is probably trying to stay here is that there's assets there. You just need to do what you need to do to make them liquid to pay us back and full. And I think that's really the sticking point. And the fact that Bivavo has rejected that kind of means, I think broadly means that creditors are not going to really be budging at this point. Because I think most, you know, most who followed the crypto space pretty closely, it's hard to ignore how messy this situation has gotten. And I think ultimately a lot of this ends up falling on DCG, which is really unfortunate. So just to draw out something that you said earlier, it seems like your basic recommendation to DCG would be what to sell the 11% of GPTC that they own in order to recoup

Starting point is 00:24:31 whatever they could from that and sell some venture. investments and then use all that to pay. Anyway, you fill it in. I'm not going to. Of course. No, I mean, the problem is that there's no good recommendation because the reality is that if you risk manage yourself properly, you would have never put yourself in this situation. And that's the really tough part.

Starting point is 00:24:52 Now, if you want to tell me how, if you want to ask me, how do you get this resolved quickly? Yes, you got to sell what you can sell, which I would suggest is probably some of your more valuable assets that, if anything, vary probably treasures. But then if anything, as well, the way I kind of looked at it in the math that I kind of did in November suggested that if there were a redemption mechanism that were enabled for GBT, then you would see a large increase in the asset value of their GBT holdings, which are obviously 11% of all GBTC outstanding, which would fill a big chunk of that hole. Now it's worth noting, you know, DCG, gray scale make a lot of money off those fees, which I believe are currently at 2%.

Starting point is 00:25:40 And that is kind of the prize possession for the DCG empire. And so giving that up is tough. And I think that's really a situation. I've kind of taken the stance that I've spoken to ROM about this over the last few months. And I've spoken to plenty of people about this is that the best solution here is probably to end this GDPTC trade by ultimately. allowing redemptions to happen and kind of get this saga over with because we know that this has been going on for the last call it year and you know three AC was involved we know our hedge funds were involved we know genesis got tied up i think the reality is that this saga just needs to end

Starting point is 00:26:18 well okay well we will see what they end up doing thanks so much for explaining it all on unchained of course thank you very much for having me don't forget next up is the weekly news recap Stick around for this week in crypto after this short break. Welcome aboard via rail. Please sit and enjoy. Please sit and stretch. Steep. Flip.

Starting point is 00:26:46 Or that. And enjoy. Via rail, love the way. Thanks for tuning in to this week's news recap. SEC charges Genesis and Gemini with offering unregistered, securities. After wrapping the interview with Karim, news broke that the SEC charged both Genesis and Gemini with offering unregistered securities to Gemini Earned customers. The complaint alleges that the depositors in the Gemini Earned program lent their crypto to Genesis, while Gemini

Starting point is 00:27:18 acted as an agent facilitating the transaction and taking a fee as high as 4.29% from the returns that Genesis paid out. Meanwhile, the SEC says Genesis, used its discretion to generate interest for Gemini-earned customers. In the complaint, the SEC seeks permanent injunctive relief, disgorgement, pre-judgment interest, and civil penalties against both Genesis and Gemini. SBF launches a substack while under house arrest. Sam Bankman-Fried, the disgraced founder of Crypto Exchange FTX, published a blog post on his new substack newsletter titled,

Starting point is 00:27:57 FTX premortem overview, in which he gave him. perspective on the collapse of the company and sister trading firm Alameda research. He named three reasons for the collapse of FtX, the huge amount of illiquid assets on Alameda's balance sheet, Alameda's failure to hedge against the bear market, also known as poor risk management, and Alameda's targeted crash precipitated by the CEO of Binance, Chang Peng Zhao or CZ. As for how all these issues at Alameda caused FTX to go insolvent, He blamed contagion, quote, similarly to how three arrows, etc., ultimately impacted Voyager, Genesis, Celsius, BlockFi, Gemini, and others.

Starting point is 00:28:42 Keeping in line with his recent plea in court, SBF maintained his innocence. He said, I didn't steal funds and I certainly didn't stash billions away. He also called it ridiculous that FtX U.S. users haven't recovered their funds yet since, as he claims, the American subsidiary was fully solvent. when he left the company. FTX recovers $5 billion in assets. In a court hearing on Wednesday, the liquidators of FTX said they have been able to recover

Starting point is 00:29:11 a substantial amount of assets, including cash, liquid cryptocurrencies, and liquid investment securities worth over $5 billion. They added that this sum does not include an additional $425 million worth of crypto held by the Bahamas Securities Commission. Despite this significant recovery, there is still an undisclosed amount of missing assets that are owed to customers.

Starting point is 00:29:35 Moreover, this week, the United States Department of Justice took possession of over $456 million worth of Robin Hood shares that were owned by Sam Bankman-Fried and Gary Wong, the co-founders of FDX. The shares were confiscated because they are considered assets connected to illegal activities, such as money laundering or violations of wire fraud. In the ongoing bankruptcy case, Judge John Dorsey, rejected a request from media organizations and the U.S. government to disclose the list of creditors for FTX, which will remain sealed for another three months. Still, bankruptcy court documents revealed that Tom Brady, New England Patriots owner Robert Kraft's companies, and crypto firms

Starting point is 00:30:17 like BlackRock, Coinbase, Lightspeed, Pantara, and the Tazos Foundation are among the stockholders of FDX. Judge Dorsey also received a letter from a group of four U.S. senators who are requesting that an independent examiner be appointed in the bankruptcy case. Additionally, the new management of FTX, led by John Ray III, is requesting the return of charitable funds that were previously donated by Sam Bankman-Fried. For example, Future Fund, FTC's charitable arm, had pledged more than $160 million to over 110 nonprofits. Even though FTCS has gone bust, there are as many as 117 parties interested in acquiring some of

Starting point is 00:30:59 exchanges assets, as per illegal document filed in the case. As the proceedings move ahead, more executives are talking to authorities. On Monday, Bloomberg reported that Nishad Singh, the former director of engineering at FTCS, met with New York prosecutors to discuss a possible limited immunity deal, following allegations of his involvement in fraud at the exchange. What's more, former president of FTCS, Brett Harrison, said he plans to disclose details about the operations of the crypto exchange in time. The CFTC charges Manko markets exploiter. In the latest development of the Mingo Markets Exploids Saga, the U.S. Commodity Futures Trading Commission or CFTC filed charges against Avraham or Avi Eisenberg for market manipulation.

Starting point is 00:31:48 Eisenberg was arrested in Puerto Rico on December 26th and is now in custody pending a trial. As per the complaint filed on Monday, the regulator alleges that Isexuals, Eisenberg engaged in a manipulative and deceptive scheme to artificially inflate the prices of swaps offered by mango markets, resulting in the misappropriation of more than $100 million from the platform. The CFTC is seeking civil monetary penalties as well as other forms of relief, such as trading bans, restitution, disgorgement, rescission, and pre-and-and-posedgment interest. Eisenberg's involvement in exploiting the Mango Markets Protocol is reportedly also being investigated by the U.S. Securities and Exchange Commission. Voyager Digital obtains preliminary approval for Binance's $1 billion deal. Bankrupt Crypto lender Voyager Digital has been granted initial court approval for its $1 billion sale of assets to finance. U.S. bankruptcy judge Michael Wiles in New York

Starting point is 00:32:46 gave Voyager permission to enter into an asset purchase agreement with the crypto exchange and to hold a vote among its creditors on the sale, as per the court filing. If executed, Voyager customers who have been unable to access their funds since July 2022 will get 51% of their capital back. Voyager filed for bankruptcy in July due to the crypto winter and exposure to the now collapsed Terra and Three Arrows Capital. Finance US emerged as the ultimate winner of the bid in December last year. However, the deal will not be final until a court hearing is held on March 2nd or shortly thereafter. The deal also has faced opposition from the SEC, and more recently from Alameda research.

Starting point is 00:33:31 Voyager criticized Alameda and its affiliates for objecting to the acquisition, stating that it is an example of hypocrisy at its finest. On Tuesday, Binance the world's largest crypto exchange by volume acknowledged flaws in its system, which left a significant amount of BUSD under collateralized. The stable coin, which is designed to be backed one-to-one by the U.S. dollar, was found to be under-collateralized by a minimum of $1 billion. billion dollars. The issue caused the value of BUSD to deviate from its expected value by a

Starting point is 00:34:04 significant margin, an event that reportedly occurred at least three times, according to analysts. Layoffs again hit the industry. Coinbase, the largest exchange in the U.S., announced in a blog post that it will be cutting about 25% of its operating expenses, which includes layoffs of about 950 employees, roughly 20% of its workforce. The decision was made in response. The decision was made in response to the decline in the markets, the broader macroeconomic conditions, as well as the fallout from malpractice in the industry. The CEO of Coinbase, Brian Armstrong, stated that the company is well capitalized and that the changes will ultimately benefit Coinbase in the long run. Coinbase is downsizing its workforce for the second time in less than a year, following the

Starting point is 00:34:47 layoffs of 1,100 people in June 2022. Consensus, one of the biggest players in the Ethereum ecosystem and the developer of a popular Web3 wallet, Metamask, followed Coinbase's path and announced it was firing 100 employees. Meanwhile, perhaps with the intention of showing more strength than its competitors, Binance CEO Chengping Zhao said the company aims to hire up to 30% more employees in 2023. BlockFi executives did not withdraw any crypto after October. Bankrupt crypto lender BlockFi has assured accord that its executives did not withdraw any of their own crypto held on the platform prior to filing for bankruptcy. Lawyers representing BlockFi told the court that this is not a case of insider extraction of

Starting point is 00:35:34 value, as seen in Celsius, where management withdrew large amounts of money on the eve of filing for bankruptcy. Joshua Susberg, a partner at law firm Kirkland and Ellis, which represents both BlockFi and Celsius in their bankruptcy proceedings, noted that $15 million worth of withdrawals made in August by five senior executives at BlockFi were used to sell. settle litigation. Meanwhile, creditors in the bankruptcy proceedings sought to keep their personal information private as they're worried about identity theft and hacking. Speaking of bankrupt crypto lenders, Kyle Davies, co-founder of hedge fund Three Eros Capital, expressed disappointment among the firm's creditors regarding the ongoing bankruptcy process. According to Davies,

Starting point is 00:36:17 the costs associated with the process have been high, causing delays due to disagreements among creditors, and there has been dissatisfaction with the way the assets of the estate are being valued. McAleenau brothers are under investigation by DOJ. The United States Department of Justice is currently investigating the business practices of the McAleena brothers, Ian and Dylan, who are the founders of Solana-based Stable Coin Exchange, Sabre Labs. The investigation comes after a report from CoinDesk in August, which revealed that the brothers had used pseudonyms to create an interconnected system of financial products that artificially inflated the value of their crypto deposits. This manipulation of metrics helped boost the growth of their Solana-based Stablecoin project in the midst of the 2021 crypto market

Starting point is 00:37:04 peak. DOJ is now looking into the web of crypto projects associated with Sabre, including the Defi app Sunny Aggigator and the Stablecoin project Cascio. The investigation remains ongoing, but Sabre Labs continues to operate. Meanwhile, the Sunny and Casio projects have been, been shuttered. El Salvador passes bill to pave the way for issuance of Bitcoin bonds. El Salvador's legislative body has taken a crucial step forward in the issuance of the country's Bitcoin bonds that were supposed to launch early last year and passed a bill that will establish a legal framework for all digital assets that are not Bitcoin and will open doors for President Naibu Kelly's Bitcoin bonds. The plan entails issuing $1 billion in bonds on Blockstream's

Starting point is 00:37:49 liquid network and investing half of the funds in Bitcoin and either half in the infrastructure necessary to develop the Bitcoin industry in El Salvador. The bonds would also offer a 6.5% yield and provide a quick path for investors to acquire citizenship in the country. Withdrawals of staked ether are closer. After successfully implementing the merge in September last year, the next move for Ethereum is to enable withdrawals of staked ether, which will occur in a hard work called Shanghai. This week, developers said they plan to release a public test network for the Shanghai upgrade by the end of February. The upcoming withdrawal has caused a wave of optimism for the issuers of ether liquid staking derivatives. The tokens of Lido and Rocket Pull have jumped 36% and 27%

Starting point is 00:38:37 respectively in the last seven days. Time for fun bits. A song a day man, music video. Vertical Dream, which describes itself as an entertainment company exploring the boundaries of creative content and immersive digital experiences, made a music video for a song called GM by Jonathan Mann or Song a Day Man. Case you didn't know, he's been making a song a day for 13 years and now sells them daily as NFTs. The video kicks off with someone moving out of their house because they were wrecked and shows a moving truck whose number is 1-800-rugged. Tara Luna brought us crashing to the ground, and the Fed raised rates and kicks us when we're down. Go the lyrics. Here's a short snippet. Everyone got hurt in the royalty war.

Starting point is 00:39:27 Board a split-punks than the punks flit more. Disappointing moon broke. We said GM. We said GM. Thanks so much for joining us today. To learn more about Kareem and the ongoing situation between Gemini and DCG, check out the show notes for this episode. Unchained Premium now includes full transcripts for all shows and exclusive interviews with crypto builders.

Starting point is 00:40:15 Go to UnchainedCripto.substack.com to subscribe. Unchained is produced by me, Laura Shin, both over from Anthony Yun, Mark Murdoch, Matt Pilchard, Zach Seward, Juan Aranovich, Sam Shri-Rom, Pamajimdar, Shashank, and CLK transcription. Thanks for listening.

Unchained - DCG's Dilemma: Should It Sell Its GBTC Holdings to Repay Gemini? - Ep. 442

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