Marketing materials described an attractive opportunity. Users of Gemini, a cryptocurrency exchange founded by identical twins Cameron and Tyler Winklevoss, can transfer their digital assets to a product called Earn. The assets will then be loaned and will yield a high yield of 7.4 percent per annum. Feeling nervous? Gemini promised investors that they would be able to redeem their cryptocurrency “at any time… plus the interest you earn.” For some, this gave the impression that their money was safe.
Apparently it wasn’t. On November 16, the company announced that amid losses from cryptocurrency exchange FTX, its lending partner Genesis had “paused withdrawals” and thereby blocked client assets. The Financial Times later reported that Genesis owed Gemini’s customers $900 million.
Multiple former Gemini employees told The Daily Beast that the company downplayed Earn’s riskiness from the start.
“Gemini definitely sold it as ‘no hassle.’ It’s easy. Get your cryptocurrency back immediately, without delay,” said Nick Fuhrmann, who worked as a senior data engineer at Gemini until November 2020 when the product was being developed. “It was seen as less of a risk, at least for me.”
Even Fuhrmann, whose work in the industry has made him a more sophisticated cryptocurrency investor, said Earn mitigates its risks when it invests its assets in the program. Now he is waiting for what will happen to his money.
A second former employee claimed that Earn’s whole purpose was to find a new revenue stream for the company, even if it put customers at risk.
“Businesses make money from fees, so how do you get more fees? You invent a new product,” he said. “I think that was the general sentiment within the company.”
The employee said he did not work directly on Earn’s development. When the product finally went on sale in February 2021, he and other employees said they saw the conditions for the first time. “[We] was like, “Oh my god, are you kidding me?” he said.
Cameron (left) and Tyler Winklevoss discuss Gemini Trust Company, a new bitcoin exchange, in an interview on October 8, 2015.
Adam Jeffery/NBCUniversal via Getty Images
These terms described how users would lend their assets on an “unsecured basis,” meaning borrowers “would not be required to post collateral” in the event of a decline or default. The contract detailed many other risks: the funds were not insured, they could be lost forever in the event of error or fraud, and Gemini could not actually guarantee specific rates of return.
Users agree to indemnify Gemini from “any loss or liability” except in cases of gross negligence or willful misconduct. Meanwhile, the company charged a fee ranging from a meager 4.74 percent to facilitate loans. (While the press release announcing the program did not highlight other potential drawbacks, it did state that the funds would be uninsured.)
Early on, Gemini announced on Earn’s homepage that it vets borrowers like Genesis “through our risk management framework, which reviews our partners’ collateral management process.” The page noted that “there is always risk in investing” but offered additional assurances: “We will periodically review our partners’ cash flow, balance sheet and financial statements to ensure appropriate risk ratios and soundness. the financial situation of our partners.”
Marketing materials reviewed by The Daily Beast also predicted a rosy outlook. An email sent to early registrants included a vertical graph to show users’ potential earnings. “Of course, people will be attracted to 7-9 percent [yields] and don’t ask questions,” said the former employee.
Some potential investors have identified the risks of Earn. A Reddit thread from two years ago contained dozens of comments about the terms and conditions.
“Their simplistic explanations make it sound like it’s just free money, then you try to activate it and they bombard you with legal information that hasn’t been mentioned anywhere before… they say ‘it could be gone tomorrow and ur fukd.’ words”, one person wrote.
Another user: “All at your own risk and hopefully we can give you a 3.05 [annual percentage yield]. If not, we are not responsible.”
But not everyone saw the dangers. One optimistic commenter applauded the potential returns, writing: “It seems like a no-brainer to me. I believe in Gemini enough that no matter what… [terms of service] topics people are discussing here.”
Gemini did not respond to requests for comment, though the company made it clear to Earn customers that it was working on a resolution, stating that “getting your money back is our highest priority and we are acting with the utmost urgency.” Genesis declined to comment to The Daily Beast.
The Winklevoss twins are perhaps better known as the Winklevii — a nickname that caught on after their portrayal in a 2010 Facebook biopic. The social network— are two of the most recognizable faces in cryptocurrency.
Last summer, their reputation took a hit in the eyes of some current and former employees when Gemini laid off dozens of employees amid a downturn in the broader crypto industry. The brothers, meanwhile, were busy making cover songs with their self-proclaimed “hard hitting” band, Mars Junction.
“They laid off 10 percent of their staff,” a former employee told The Daily Beast at the time, “and then they went on tour with a rock band.”
In that article, employees recalled their concerns about Gemini’s corporate strategy, including concerns about excessive hiring and launching products that boosted revenue but failed to improve customers’ lives.
“Everything looked a little off except for the Gemini credit card,” a former employee told the Beast this week. “And this credit card just felt more prestigious because Mastercard was on board.”
A separate former employee defended the case, even with the issues at Earn. “Any investor, you have to do your research,” he said.
Gemini now strives to protect the trust of customers. The company has created a web page that includes regular updates about the Earn debacle and Cameron Winklevoss. he tweeted it also set up a “special committee with other creditors” to fight for a resolution. The law firm of Kirkland & Ellis was brought in to help.
David Silver, an attorney representing cryptocurrency investors, argued that Gemini was obligated to provide a favorable outcome. “I believe that legally, ethically and morally, Gemini can and should make its users whole,” he said.