The New York Department of Financial Services (DFS) has launched an investigation into crypto exchange Gemini, according to a report from Axios. The investigation comes after Gemini faced criticism over its Gemini Earn product, which promised users a high-yield savings account for crypto. The product worked by allowing users to deposit crypto, which was then lent to the crypto firm Genesis. Genesis would then lend the crypto to trading firms, with some of the interest being returned to Gemini’s customers. However, since mid-November, some 340,000 Gemini Earn customers have had hundreds of millions of dollars stuck with Genesis, as the lending unit of Genesis filed for bankruptcy in January.
Gemini has faced criticism over its handling of the situation and its promotion of Gemini Earn despite warning signs about similar lending products. The Information reported earlier this month that the co-founders of Gemini, Tyler and Cameron Winklevoss, planned to continue promoting the product. Before launching Gemini Earn, DFS instructed Gemini to clearly spell out that funds deposited through the product would leave Gemini’s custody and that there was a risk of total loss of funds.
A spokesperson for Gemini has not responded to a request for comment regarding the investigation by the DFS. The outcome of the investigation is yet to be seen, but it will likely be closely watched by the crypto community and those invested in Gemini and its products.