Gemini, the U.S.-based cryptocurrency exchange founded by Cameron and Tyler Winklevoss, long marketed itself as a safe, regulated, and transparent platform. But in late 2022, its reputation took a heavy blow when the company froze withdrawals from its popular Earn program.
What was once pitched as a secure way to earn yield on idle crypto turned into a cautionary tale about counterparty risk, opaque lending practices, and the domino effect of failures across the crypto ecosystem. The freeze trapped billions of dollars in customer assets, sparking lawsuits, regulatory scrutiny, and a bitter feud between Gemini and its lending partner.
1. What Was Gemini Earn?
Launched in 2021, Earn allowed Gemini customers to:
- Lend crypto assets in exchange for yields of up to 8% APY.
- Generate income passively while keeping funds on Gemini’s regulated exchange.
- Trust that Gemini had vetted partners and was ensuring safety.
Behind the scenes, Gemini loaned Earn assets to Genesis Global Capital, a major institutional lender, which in turn lent them out to hedge funds and market makers.
2. Marketing and Promises
Gemini promoted Earn as a low-risk opportunity:
- “Your crypto works for you.”
- Emphasis on Gemini’s reputation as a regulated New York trust company.
- Association with the Winklevoss twins, who cultivated an image of credibility and compliance.
- Earn was pitched as safer than decentralized lending because it ran through a trusted, U.S.-licensed exchange.
Customers believed they were participating in a conservative yield program—not high-risk lending.
3. The Domino Collapse
The downfall of Earn was tied to the unraveling of Genesis’ counterparties:
- Three Arrows Capital (3AC): Genesis had major exposure to the hedge fund, which collapsed in mid-2022.
- FTX bankruptcy: The November 2022 implosion of FTX sparked liquidity crises across the industry, hitting Genesis hard.
- Genesis halt: On November 16, 2022, Genesis suspended withdrawals, citing “unprecedented market turmoil.”
Because Gemini Earn depended entirely on Genesis, Gemini immediately froze Earn withdrawals, stranding customer funds.
4. Scale of the Freeze
At the time of the freeze:
- Roughly $900 million in customer assets were locked.
- More than 340,000 Earn users were affected.
- Many retail investors had treated Earn as a savings account alternative, amplifying the pain.
The scale of the freeze turned Gemini’s reputation from “safest exchange” to “another failed yield platform.”
5. Customer Backlash
Users expressed outrage:
- Many felt misled by Gemini’s branding of Earn as safe.
- Critics argued Gemini failed to disclose the risks of Genesis’ lending practices.
- Families and retail investors reported losing life savings.
The incident sparked class-action lawsuits and drew harsh criticism from the broader crypto community.
6. Regulatory Scrutiny
U.S. regulators quickly took notice:
- SEC lawsuit (January 2023): Accused Gemini and Genesis of offering unregistered securities through Earn.
- State regulators: Multiple states launched investigations into the program.
- Political fallout: Lawmakers cited Earn as an example of why crypto lending requires stricter oversight.
The legal pressure compounded Gemini’s financial and reputational struggles.
7. The Winklevoss vs. DCG Feud
At the heart of the crisis was a feud between Gemini and Digital Currency Group (DCG), parent company of Genesis.
- The Winklevoss twins accused DCG and its CEO Barry Silbert of defrauding Earn customers.
- Gemini argued Genesis misrepresented its financial health.
- Public letters and Twitter battles escalated the conflict, fracturing trust in once-close industry alliances.
The feud turned into one of crypto’s ugliest corporate spats.
8. Attempts at Resolution
- Proposed recovery plans: Gemini pushed DCG for repayment, but negotiations dragged.
- Bankruptcy proceedings: Genesis filed for Chapter 11 in January 2023, complicating recovery.
- Gemini’s legal actions: Filed claims in bankruptcy court to recover funds on behalf of Earn users.
- Partial hope: By 2024, settlement discussions suggested customers might recover some assets, though not in full.
The drawn-out process left many users disillusioned.
9. Lessons from the Earn Freeze
- Counterparty risk matters: Even trusted exchanges can be vulnerable if their partners fail.
- High yields = hidden risks: Promises of 8% APY in a low-rate environment should have raised red flags.
- Transparency gaps: Gemini downplayed Genesis’ financial fragility until it was too late.
- Centralized risk in disguise: Earn mimicked DeFi lending but without the transparency of on-chain protocols.
The collapse showed that centralization doesn’t guarantee safety.
10. Broader Industry Implications
The Earn freeze reshaped perceptions of crypto lending:
- Erosion of trust: Retail users now approach yield programs with greater skepticism.
- Regulatory tightening: Authorities push harder for investor protection and registration requirements.
- Reputation risks: Even compliant-seeming firms like Gemini can stumble when tied to risky partners.
- Shift toward DeFi: Some argue decentralized protocols, with open data, are safer than opaque centralized lending.
Gemini’s freeze was part of a wider contagion that swept across the industry after FTX.
Conclusion
Gemini’s Earn program freeze was a turning point for the exchange and the wider crypto lending sector. Marketed as a safe way to earn passive income, Earn ultimately depended on a single counterparty—Genesis—that collapsed under industry-wide turmoil. The result was nearly a billion dollars in frozen funds, regulatory lawsuits, and a major blow to Gemini’s reputation.
For the industry, the lesson is clear: yield comes with risk, and trust built on branding can evaporate overnight. The Earn saga will likely serve as a reference point in debates about regulation, investor protection, and the future of centralized lending in crypto.
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