"Legal" Ponzi scheme? Unveiling the circular lending of Gemini exchange and its founder

Author|Protos Staff

Compiled by| Wu Says Blockchain

TL;DR: Key Points from Gemini's 10-K Report and Internal Lending Cycle

· Funds Shuffling: The founder's WCF lent cryptocurrency assets to Gemini, which then collateralized them to third parties to obtain USD loans, creating an internal lending cycle.

· Low-Price Control Acquisition: During the IPO, the founder's debt was converted into super-voting shares at a 20% discount. Retail investors bought in at a high price, while the founders retained 94.7% of the voting power.

· Sword of Damocles: Although Deloitte issued an unqualified audit report, WCF can withdraw up to 4,619 BTC in loans at any time, putting the exchange's liquidity at risk.

· Market Value Avalanche: Since going public, the stock price has plummeted 88% (to $4.42), with several top investment banks downgrading it to a "sell" rating and facing a class-action lawsuit.

· Core Conclusion: Gemini's operational model, which favors the founders' interests and relies on related-party funding, has collapsed in the secondary market, facing a severe governance and trust crisis.

Cameron and Tyler Winklevoss, through their private investment company Winklevoss Capital Fund (WCF), lent thousands of bitcoins ($BTC) and ethers ($ETH) to their own cryptocurrency exchange, Gemini. Subsequently, Gemini collateralized this batch of crypto assets to Galaxy Digital and NYDIG to raise USD loans.

In September 2025, the exchange went public at a price of $28 per share and converted $695.6 million of WCF debt into Class B shares with super-voting rights at a 20% discount, allowing the twin brothers to directly control 94.7% of Gemini's voting power.

The Gemini 10-K document submitted yesterday detailed this entire operational structure. Social media users referred to it as a "circular operation."

Attached X Platform Post:

This is entirely a circular Ponzi scheme:

Borrowing BTC from related party WCF; collateralizing these BTC to lenders for USD loans (involving Galaxy, bond issuance, NYDIG).

Some of these loans were settled in discounted stock during the IPO.

Moreover, there are more operations (involving Ripple and RLUSD, convertible bonds, etc...)

Deloitte issued an unqualified audit report: no key audit matters (KAM), and said nothing about related parties, liquidity, or going concern issues...

How are these operations legal?

Winklevoss Capital Fund's Lending Cycle

Here is the basic flow of funds. WCF, under the Winklevoss brothers, lent BTC and ETH to Gemini through an agreement with no fixed term.

Subsequently, Gemini provided these borrowed crypto assets as collateral to third-party lending institutions. Galaxy Digital provided a $116.5 million loan at an interest rate of 11-12%, with a collateralization ratio of 145-155%. NYDIG provided $75 million through a repurchase agreement at an interest rate of 8.5%.

Gemini used this batch of USD funds for daily operations and to meet regulatory capital requirements.

When the IPO was completed on September 15, 2025, the exchange used cash from $456 million in net IPO proceeds to repay the $116.5 million owed to Galaxy.

Gemini is currently listed on Nasdaq under the ticker GEMI.

The exchange also repaid $238.5 million under the Ripple warehouse credit facility, but as of the end of the year, $154 million in Ripple debt remained unpaid.

However, the twins' own debt has not been repaid in cash.

Gemini converted $200 million of WCF convertible notes, $475 million of WCF term loans, and accrued interest into 31.1 million shares of Class B stock with super-voting rights at a price of $22.40 per share.

This conversion price is 20% lower than the price retail investors paid for the equivalent Class A stock on the same day.

The only difference between Class A and Class B shares is the distribution of voting rights and ownership. Aside from that, both have the same par value, dividend rights, and liquidation priority.

Class B shares can be converted into Class A shares on a one-to-one basis.

Retail investors bought in at $28, while the Winklevoss brothers only needed $22.40

This discount is at the core of how this circular operation harms the interests of common shareholders.

WCF lent crypto assets to Gemini. Subsequently, Gemini collateralized these borrowed assets to obtain more loans. Specifically, Galaxy and NYDIG lent USD funds to Gemini for its daily operations.

Then, during the same IPO, Gemini issued equity to WCF at a discounted price, while this IPO forced retail investors to bear a 20% higher entry cost.

Further reading: Sources reveal that the Winklevoss brothers withdrew $280 million before Genesis collapsed.

The SEC 10-K document confirms that as of December 31, 2025, Gemini still owes WCF 4,619 BTC, which is valued at approximately $400 million.

In 2025, Gemini paid WCF $24.2 million in borrowing fees.

In summary, according to Nasdaq's corporate governance standards, Gemini simultaneously holds the roles of debtor, custodian, and "controlled company."

Despite being a publicly traded company, Gemini's co-founders still hold the vast majority of voting power.

Additionally, according to data from Arkham Intelligence cited by crypto researcher Emmett Gallic, WCF holds approximately 8,757 BTC in Gemini Custody addresses.

Deloitte Issues Unqualified Audit Opinion

Deloitte issued an unqualified audit report for Gemini. However, the reality is that WCF has the right to demand repayment of this loan of up to 4,619 BTC at any time.

With just a written notice, the twins could shake the foundations of the exchange they effectively control.

Gemini's stock price in the secondary market has plummeted 88% from its IPO issuance price. "Gemini Space Station" is its legal entity name, symbolizing a rocket launch, but it clearly does not live up to its name, as its opening price on the first day of the IPO was $37.01 per share.

Now it is only $4.42 per share.

Gemini set the IPO issuance price at $28 on September 11, 2025. The next day it opened at $37.01, reaching a high of $45.89, and then began a continuous decline. The stock hit a 52-week low of $3.91 on Monday this week and closed at $4.42 on March 31, 2026, down 88% from the opening price.

The company's market value has collapsed from over $3.8 billion to about $520 million. Citigroup, Cantor, Truist, and Evercore have all downgraded the stock to a "sell" rating.

A class-action lawsuit has already been filed, accusing the company of misleading investors in its strategic planning.