Wow! actually tells all in his shareholder letter and Q&A. dcgupdate.com (Well, not quite...). Barry confirms what I wrote previously, but with a different spin on it. I will try to keep it simple and also, look at it from Barry's perspective. 🧵👇
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1/ Barry claims that DCG's wholly-owned subsidiaries all operate independently. This allows Barry to claim that he has no authority on the Genesis restructuring. Ala SBF's claims of separation with FTX/Alameda, you can decide whether to believe this or not.
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2/ Barry mentions that DCG has had no relationship with FTX/Alameda, 3AC, and Terra Luna. Note that he also mentions Genesis had a lending/trading relationship with Alameda and 3AC, but coincidentally makes no mention of any relationship with Genesis and Terra Luna.
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6. $LUNA explodes early in 2022 but then $UST and $LUNA face a devastating bank run that leaves $LUNA down 95%+. Fully un-collateralized algo stable coins are flawed.
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4/ Barry discloses that DCG borrowed $447.5 USD, 4,550 BTC (~$78mm), and 4,048 BCH (~$1.5mm) of which they used the USD to buy back DCG stock, equities, and altcoins. They shorted the BTC/BCH as hedges for their own GBTC/BCH that they bought. These loans are due May'23. I believe
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5/ DCG will be able to repay this loan. Grayscale itself is easily worth much more than this $500mm+. Barry also discloses that Genesis had a 1.1bn shortfall when 3AC collapsed, and to plug the hole, DCG secretly swapped the 1.1bn 3AC claim for a 1.1bn claim on DCG. This is akin
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6/ to an accounting trick whereby DCG borrows from Genesis lenders and gives the money back as I explained in a previous 🧵. Now, Barry claims they just swapped one claim for another - semantics. Either way Genesis still has a 1.1bn shortfall.
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4/ the parent co, at risk. DCG took on the liability, but they didn't have the cash to give Genesis for its hole in the BS. So, they took out a 1.1bn 10yr loan from Genesis, and gave the funds back to Genesis to fill the gap! The 1.1bn came from the lending book (Gemini earn and
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7/ From Barry's perspective, he is the good guy because DCG had no obligation to do this and a 1.1bn claim on DCG > 1.1bn claim on 3AC. I agree! HOWEVER, there was no transparency! I will explain why this was fraudulent. At the time 3AC collapsed, Genesis had a shortfall.
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8/ Therefore, any depositors (lenders) to Genesis (i.e. Gemini earn customers) should've taken a haircut on their deposits. Instead, Genesis falsely claimed they were solvent by marking the 1.1bn DCG 1% cpn 10yr bond at par (laughably bad) as an asset on their balance sheet.
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9/ Depositors who withdrew their money after, incorrectly received 100% back. Meanwhile, they convinced people to keep depositing (Gemini earn) who would then take a loss. Does this sound familiar (FTX ponzi)? Now, there could be a huge mess of clawbacks for those who withdrew.
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10/ What Barry/DCG/Genesis should have done is come clean and freeze all borrow/lending. Make depositors take a haircut for the 3AC loss and offer to replace that loss with a claim on DCG (1% cpn 10yr bond). Then, Barry WOULD have been the good guy. Genesis can move forward.
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11/ Instead, they committed fraud 😢. What does this mean? Genesis will likely be in bankruptcy. DCG has sufficient liquidity to survive. They have 10yrs to pay back the 1.1bn. Barry&co will be investigated, and they will have to resign and either pay a fine or go to jail.
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13/ purely speculative. Either way, the path to $GBTC redemptions will take some time.
If you found this helpful, please ♥️like and retweet. I don't tweet too often, and will surely be more motivated to write more if there is enough interest.
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