DCG Filings Analysis

Most of the DCG analysis you’ve read and heard looks to be unaware of basic facts from the filings. We’ve read the filings. The key points are:

1. A DCG portfolio company appears to manage Barry Silbert’s personal assets.
2. Genesis collapsed as people called loans and a massive balance sheet hole was exposed.
3. The portco with Silbert’s assets was one of those that pulled credit.
4. Gemini Earn was dealing in tokens the SEC has called securities.
5. Gemini’s collateral likely will not improve their overall recovery much.

It does not look good for DCG’s founder or Gemini Earn. Genesis’ creditors may be in for a positive surprise if they can claw some of this back.

DCG’s stonewalling makes a lot more sense now.

Genesis: A Simple Story

Genesis disclosed total loans outstanding in their quarterly reports through Q3 2022. These show a total of:

That is 2.8 billion as of the filing filing. Now we know the total loans outstanding per the chapter 11 filings were about 2.6 billion.

This, along with other information in the filings lets us build a Genesis balance sheet.

If we consider the DCG loan and promissory note, and all their other loans, to be worth par then equity is a (tiny) positive number.

If we write off the DCG loans equity is quite negative. The other loans are a bit of a mystery. But we know from the filings that about $114 million was loaned to now-bankrupt Bitcoin ATM company Cash Cloud. If we write off only that loan equity is beyond negative $1.7 billion.

This means, ignoring precisely which creditors get what, that external creditors are looking at something like a 40% haircut (1540/2600 ~ 60%).

The story is simple: everyone pulled credit quickly and their insolvency was unmasked. There is no mystery here.

Note that the filings show a total of over $4 billion in loans outstanding to what I make to be 668 borrowers. Likely some of that is internal and/or different entries are in fact affiliated. Once you finish reading this post you won’t be shocked to find out there were massive internal deals.

Gemini Did Weird Stuff

Some have opined that Gemini Earn is somehow well-protected here and that the program was well run. Let’s disabuse everyone of that notion now.

Gemini seized and sold about $284 million of collateral per the filings.

As we will see shortly it is not entirely clear the exact amount Gemini is owed. But it is somewhere in the $750 million to $900 million range. The collateral covered something like a third of that amount. That means they are unlikely to experience a materaily better recovery that any other creditor here.

We can also identify which unnamed creditor in the filings is Gemini. How? Well, its the largest entry under “Digital Currency and USD Payables” and by far the largest depositor of GUSD.

Their portfolio is interesting:

Maybe another borrower is also Gemini. We cannot really tell from the filings as they are only numbered. But this large entry is obviously Gemini. Nobody else used GUSD!

In USD terms it is mainly USD/stablecoins, BTC and ETH. But look at that other stuff. Gemini Earn was intermediating tokens the SEC has called securities. Specifically AMP and RLY are named in the Coinbase insider trading action that was settled recently.

And you’ve really got to wonder that they were thinking with some of this stuff. PAXG is backed by physical gold. Quite a few of these are governance tokens that are likely to have securities problems. It is hard to believe anybody had a real plan for earning yield on this stuff.

Related Parties

We already know Genesis was lending money to the DCG parent company. But there is a quite a bit more related party action that anyone has reported.

Here is the balance between Genesis and DCG, exploding as the parent company assumes the 3AC liability. This is well known.

There is also a lot of borrowing among the Global, AsiaPac and International (BVI) entities. For example here is a massive internal lending flow and reverses once 3AC blows up:

But this is not the oddest internal lending relationship. Here is an affiliated entity called HQ Digital borrowing a billion dollars from Genesis Global at the beginning of 2022 and then paying it back when the 3AC liability is assumed:

As an aside we can only assume the $100 billion loan in there is a mistake.

Now that’s interesting. HQ Digital is a DCG subsidiary that did not try hard to publicize the business. This particular fund was formed in late 2021 at an address shared with DCG:

And it is registered with the SEC. Specifically it filed a Form ADV. This form tells us that the firm had a single “high net work individual” client with approximately $3.6 billion of their assets under management.

Any guesses who that is? Well the filing names one natural person with an ownership interest:

Also this tells us that as Silbert owns between 25% and 50% of DCG.

The filing includes a lot of other details of this high net worth individual’s investments. Among other things we learn that Silicon Valley Bank is the custodian for a range of private funds managed in this complex:

And HQ seems to have an entire family of funds even though it has, in practice, 1 client:

Is this the real reason DCG is dragging out the negotiations?

How exactly did the “HQ Founders Liquidity Fund” work?

Note that the only meaningful assets here are BTC, ETH, USD and USD stablecoins. We’ve not been careful with the other prices because they do not matter.