Vijay Boyapati Reports Impropriety and Conflicts of Interest at Digital Currency Group

In a series of posts on X, Vijay Boyapati has reported on alleged similarities between Digital Currency Group (DCG) and FTX, highlighting concerns of financial impropriety within DCG and its CEO, Barry Silbert. 

Boyapati's posts delve into a complex narrative, drawing parallels to the FTX fraud case, and raising questions about the actions of DCG and its subsidiary, Genesis.

The saga begins with the establishment of Grayscale by Barry Silbert in 2013, which provided the first means for investors to gain exposure to Bitcoin through brokerage accounts.

Grayscale's flagship product, the Grayscale Bitcoin Trust (GBTC), traded at a premium to its net asset value (NAV), making it a lucrative option for equity market investors looking to invest in Bitcoin.

Boyapati asserts that a profitable arbitrage opportunity emerged around GBTC, with market participants like Three Arrows Capital (3AC) and BlockFi exploiting the premium by borrowing significant amounts of Bitcoin from Genesis, a subsidiary of DCG. 

Genesis operated as a prime brokerage service, facilitating Bitcoin loans and profiting from the spread between borrowing and lending rates. Key figures in the space, including 3AC and BlockFi, were among Genesis's borrowers.

The posts suggest that DCG exercised significant control over Genesis, making it an essential part of its operations. This alleged close relationship between the parent company and its subsidiary raises questions about conflicts of interest, particularly as DCG was also involved in the GBTC arbitrage trade.

As the GBTC premium began to decline due to increased competition and supply, the situation escalated. 

3AC, heavily involved in the arbitrage trade, turned to risky trading strategies, including the TerraUSD carry trade. The collapse of the Terra Luna ecosystem in May 2022 had severe consequences for 3AC leading to its insolvency.

3AC's insolvency had a cascading effect, particularly on Genesis, which had extended significant Bitcoin loans to the now-insolvent hedge fund. 

Instead of declaring bankruptcy, Genesis and DCG allegedly engaged in a plan to paper over the losses, using a "promissory note" as a remedy. This act is described as a "complete sham" by Boyapati, who argues that it didn't genuinely address Genesis's insolvency.

Boyapati’s posts claim that Genesis executives actively reassured clients that the company remained solvent, even though it faced significant financial challenges. This misleading information is suggested to have been part of an effort to minimize withdrawals.

The situation reportedly came to light in November 2022 when FTX faced a crisis, prompting customers across the space to withdraw their funds. 

Genesis allegedly could not meet these withdrawal requests, leading to a temporary freeze of client funds. However, Boyapati contends that Genesis had been insolvent since June 2022.

Finally, on January 19th, 2023, Genesis declared bankruptcy, revealing the extent of its financial issues to creditors. This development led to the New York Attorney General filing a civil complaint against Genesis, DCG, Barry Silbert, and Michael Moro (Ex-Genesis CEO) on October 19th, 2023. 

The complaint alleges a massive conspiracy to defraud investors, mirroring some aspects of the FTX case.

Boyapati argues that this story holds significant importance, comparing it to the FTX collapse. He calls for greater scrutiny and suggests that individuals involved in these cases may face criminal charges, highlighting the potential consequences of financial fraud within the digital asset space.