A 47-part Twitter/X thread by Genesis creditor Vijay Boyapati alleges Digital Currency Group (DCG) and its CEO Barry Silbert perpetrated fraud to hide massive Genesis losses stemming from Three Arrows Capital’s (3AC) implosion.
Boyapati argues DCG provided a bogus $1.1 billion promissory note to paper over Genesis’ insolvency, misleading creditors and buying time. The scheme aimed to prevent DCG’s own default after Genesis was crippled by 3AC’s collapse.
DCG’s crypto conglomerate structure
Silbert’s DCG crypto conglomerate encompassed Genesis, Grayscale, Foundry, and other companies. Grayscale’s bitcoin trust, GBTC, charged a 2% annual fee, sending profits up to DCG.
Boyapati mentioned in the tweet that Genesis sourced bitcoin from clients to lend at a higher rate to 3AC and others. DCG directly controlled Genesis’ trading arm and its lending arm via shared staff and office space.
In his tweet, he outlined that firms like 3AC performed a lucrative GBTC arbitrage trade using Genesis loans. Arbitrageurs shorted bitcoin, gave BTC to Grayscale for GBTC shares, then sold GBTC at a premium for risk-free profit.
This perpetually locked bitcoin into Grayscale’s funds, generating fees for DCG. Genesis was incentivized to provide loans, fueling the flow of BTC into Grayscale.
3AC collapse devastates Genesis
3AC heavily leveraged the GBTC arbitrage through its massive Genesis borrowings. When 3AC defaulted after the Terra debacle, Genesis was left with a $1.2 billion deficit, per Boyapati. He argues that Genesis should have declared bankruptcy at this juncture.
Instead, Silbert and Genesis CEO Michael Moro allegedly devised a $1.1 billion DCG promissory note to conceal Genesis’ insolvency from clients. Boyapati contends this papered over losses and misled creditors rather than providing real assets.
Silbert later valued the note at a tiny fraction in Genesis’ bankruptcy, implying the deficit remained, according to Boyapati. However, Genesis falsely claimed the note was cash-equivalent to restore trust.
Boyapati alleges DCG wished to dodge Genesis’ failure since it owed Genesis substantial debts. Days after 3AC’s collapse, DCG borrowed nearly 18,697 BTC from insolvent Genesis.
Boyapati argues that extraordinary conflicts of interest across Silbert’s crypto empire led DCG to perpetrate alleged fraud by disguising Genesis’ losses to protect itself.
Boyapati concluded the tweet by stating that if DCG had let Genesis go bankrupt, it would have been caught amidst the bankruptcy process. He stressed that additionally, this would have forced them to pay the huge loans taken from its parent company. Boyapati highlighted that instead of this route, Silbert chose to “extend and pretend.”