Cryptocurrency exchange Gemini has won an arbitration case brought by a customer over the collapse of its Gemini Earn lending program, according to a CNBC report. The arbitrator found insufficient evidence that Gemini misled customers or failed to perform adequate due diligence on Genesis Global Capital, its primary lending partner.
How the Gemini Earn Collapse Happened
Launched in early 2021, Gemini Earn allowed users to lend their cryptocurrency to institutional borrowers through Genesis Global Capital in exchange for interest. The program expanded quickly and attracted hundreds of thousands of customers.
In November 2022, Gemini suspended withdrawals from Earn after Genesis experienced a liquidity crisis triggered by the collapse of FTX and broader turmoil in the cryptocurrency market.
Genesis filed for bankruptcy in January 2023, leaving Earn users unable to access their funds. Gemini, which had promoted the product as a low-risk investment, faced significant criticism from customers and regulators. The U.S. Securities and Exchange Commission charged Gemini and Genesis in early 2023 with offering unregistered securities through the Earn program.
What the Arbitration Ruling Decided
The full arbitration ruling has not been made public. However, the decision found that Gemini did not breach its obligations to the customer who brought the case.
The arbitrator also determined that Gemini had not misrepresented the risks of Gemini Earn and had taken reasonable steps to evaluate Genesis as a lending partner.
The decision differs from earlier regulatory action. In 2024, Gemini agreed to pay a $5 million penalty to the SEC to settle charges related to the Earn program. Although the arbitration outcome could influence how other customer claims are considered, it does not establish a binding legal precedent in court.
Gemini Earn Users Recover Most Assets
Despite the legal disputes surrounding the program, Gemini Earn users have recovered most of their funds. In 2024, Gemini distributed cryptocurrency worth approximately $2.18 billion to Earn users, representing about 97% of the assets owed.
The recovery followed a settlement agreement involving Gemini, Genesis and other creditors during Genesis’s bankruptcy proceedings. Gemini said distributing the assets was a priority and that it worked to return users’ cryptocurrency in kind rather than in cash to help preserve its value.
The remaining 3% of assets remains subject to ongoing bankruptcy proceedings. Even so, the recovery rate is high compared with those seen in many other cryptocurrency bankruptcy cases.
Why the Gemini Arbitration Ruling Matters
The ruling highlights the legal responsibilities of cryptocurrency platforms that offer lending products through third-party partners. It indicates that partnering with an outside lender does not automatically make a platform liable for that lender’s failures when the platform has carried out adequate due diligence.
For investors, the case reinforces the risks associated with crypto lending products, including those promoted by established cryptocurrency exchanges. The decision could also influence ongoing litigation and regulatory discussions by providing a basis for assessing due diligence standards in the crypto lending industry.
However, the ruling applies only to the specific case. It does not remove the broader regulatory scrutiny facing Gemini and other cryptocurrency platforms.
Frequently Asked Questions
What was Gemini Earn?
Gemini Earn was a cryptocurrency lending service that allowed users to earn interest on digital assets by lending them to institutional borrowers, primarily through Genesis Global Capital. The program launched in early 2021, and Gemini suspended withdrawals in November 2022.
What did the Gemini arbitration ruling decide?
The arbitrator found insufficient evidence that Gemini misled customers or failed to conduct adequate due diligence on Genesis. The decision favored Gemini in a case brought by one customer, but it does not create a legal precedent for other claims.
How much did Gemini Earn users recover?
Gemini distributed approximately $2.18 billion worth of cryptocurrency to Earn users in 2024. The distribution covered about 97% of the assets owed, while the remaining 3% remains connected to ongoing bankruptcy proceedings.
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