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DCG responds to all Potential minepoints (full text) : Relationship with Genesis, Three Arrows, FTX, LUNA

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In his letter to Shareholders, the CEO responded to questions about DCG's relationship to a number of existing or potential mine sites.

Original title: DCG Shareholder Letter from Barry Silbert, Founder & CEO

czgsws & Leo, BlockBeats

On January 11, Barry Silbert, the current CEO of DCG, released the "Letter to Shareholders of DCG" in response to many questions raised by his investors and shareholders on the situation of DCG recently. BlockBeats compiled and compiled the answers to various sensitive questions in the letter as follows:

TL; DR

· There is no mixing of cash assets between DCG and any of its wholly-owned subsidiaries.

· DCG currently owes Genesis Capital $447.5 million and 4,550 BTCS due in May 2023.

· DCG only invested $250,000 in FTX Series B financing in 2021, never established a relationship with Alameda, and rarely communicated with SBF.

· DCG has no relationship with Three Arrow Capital and only held an introductory conference call in 2020.

· DCG holds a $1.1 billion promissory note from Genesis, due in 2032, representing DCG's assumption of the debt owed to Genesis at the time of Three Arrows' default in June 2022.

· DCG has not purchased, sold, short or otherwise traded Usts, and has purchased 60,000 LUNA in late 2021 for the creation of the pledge node, but its investment strategy does not include the purchase, sale, short or trade LUNA.

Full text of question and Answer Section

What is the structure of DCG's business model?

Founded in 2015, DCG is a holding company that builds, buys and invests in digital assets. Some of its businesses are wholly owned by DCG, while most of the rest are in which DCG has small stakes. Today, DCG has more than 200 portfolio companies in more than 35 countries/regions around the world and has invested in more than 50 cryptocurrency funds as well as numerous digital asset Token and blockchain projects.

How does DCG interact with its wholly owned subsidiary?

Since DCG's inception, its subsidiaries have been started and operated as independent companies with their own management team, financial and risk management protocols, and legal and compliance oversight. Each subsidiary has its own culture, operating structure and incentive mechanism. Every aspect of the day-to-day business of each subsidiary is guided by its respective subsidiary's leadership team.

DCG itself has a team of about 50 people who invest in and support our portfolio companies, as well as provide strategic guidance and oversight to our subsidiaries. To be very clear, DCG does not direct any transactions, loans or borrowings for Genesis business.

Is there a mix of cash and assets between DCG and any of its wholly owned subsidiaries?

No. Each wholly-owned subsidiary of DCG has its own bank accounts, securities accounts and encrypted accounts and maintains separate books and records.

How does DCG interact with other portfolio companies?

The team at DCG maintains a close relationship with its portfolio, providing direct strategic and operational advice to business leaders as well as access to a wide range of resources, business plans and value-added partners. In this way, DCG fosters the most collaborative and vibrant enterprise community in the blockchain and crypto space.

Where is DCG headquartered?

DCG is an American company based in Stanford, Connecticut.

How much debt capital has DCG raised from its non-affiliated companies? About what time?

DCG raised $350 million of external senior secured term debt in November 2021 from a consortium of lenders led by Eldridge.

How much does DCG currently owe Genesis Capital?

Like other institutional investors, DCG borrowed from Genesis Capital, the lending arm of Genesis. These loans have always been based on the principle of equity and priced at prevailing market rates. In addition to the promissory notes discussed in question 14 below, DCG currently owes Genesis Capital $447.5 million and 4,550 BTCS (approximately $78 million), which are due in May 2023.

DCG borrowed $500 million between January 2022 and May 2022 at interest rates of 10 percent to 12 percent.

DCG's investment entity borrows BTC at a weighted average interest rate of 3.85% during 2021 and 2022, including amounts previously borrowed but repaid to Genesis Capital, with a remaining loan balance of 4,550 BTC.

At the time of issuance in early 2022, DCG's equity value was $10 billion, DCG's EBITDA (a measure of profit) for the past 12 months was more than $1 billion, and Genesis Capital's total loan book was between $12 billion and $15 billion. During that time, bitcoin's price has ranged from $30,000 to $47,000.

In addition to the BTC loan, DCG's investment entity borrowed 14,048 Bches (about $1.5 million) at the end of 2020, currently paying 9% interest.

DCG has not borrowed from Genesis Capital since May 2022, has never missed an interest payment, and all outstanding loans are up to date.

How does DCG use the dollar loan proceeds from Genesis Capital?

The amount borrowed by DCG is initially held as cash in the Treasury Department for use when opportunities arise. The key opportunities that were ultimately identified were the repurchase of DCG shares from one of our earliest venture investors, as well as investments in liquid tokens and public stock.

How did the investor in DCG use the BTC borrowed from Genesis Capital?

DCG's investment entity uses BTCS borrowed from Genesis Capital to hedge GBTC long positions in order to maintain market neutrality on such positions. DCG's purchase of GBTC in the open market was made at a time when GBTC was trading at a significant discount to NAV (net asset value) and, as with all other investments, these decisions were based on an assessment of the likely rear-weighted risk. Our purchases of GBTC on the open market are made in compliance with Rule 10b-18 of the Securities Exchange Act and are transparently disclosed in filings and press releases.

What is the relationship between DCG and FTX?

DCG made a small equity investment of $250,000 in FTX's Series B financing in July 2021. This is part of our ongoing strategy to invest in trading platforms around the world -- we have invested in nearly 20. DCG has a trading account on FTX that accounts for less than 1 per cent of our trading volume on the platform. Barry Silbert has no personal or professional relationship with SBF. Other than a conversation in the summer of 2022 and several emails at the time, Barry has no recollection of meeting, talking or otherwise communicating privately with SBF.

What is the relationship between DCG and Alameda?

DCG never had a relationship with Alameda. Genesis has a trading and lending relationship with Alameda.

Did SBF ever serve on the board of Genesis?

No.

What is the relationship between DCG and Three Arrow Capital?

DCG has never had any relationship with Three Arrow Capital. Aside from an introductory conference call with one of the co-founders in 2020, Barry does not recall meeting, speaking or otherwise communicating personally with Three Arrow principals. DCG has never negotiated the purchase or sale of GBTC or any other investment with Three Arrows Capital.

Genesis Capital 与三箭资本存在交易和借贷关系，三箭资本拖欠 Genesis Capital 贷款。此外，三箭资本是各种灰度信托产品的投资者。

Why did DCG take over the bankruptcy claim against Three Arrows, and what did DCG get for a $1.1 billion promissory note from Genesis Capital?

Genesis Capital had been one of the top crypto lenders in the world until the summer of 2022. In June 2022, when Three Arrows defaulted on loans to Genesis Capital and numerous other lenders, there was a clear panic in the market, Fear of further contagion and the destruction of entire industries. That was one consideration in DCG's approach to Genesis Capital.

In addition, DCG believes that once the market stabilizes, the demand for institutional prime brokerage services will continue to be enormous. Genesis has the most expertise and the highest quality institutional client base in the world. Prior to launching Genesis Capital in 2018, Founded the first institutional crypto trading platform in 2013, so DCG believes Genesis is worth protecting, both for trading and lending.

DCG and its board of directors believe it is in the best interest of Genesis, its lenders and DCG to help support Genesis. The recommendation of our financial and legal advisors, as well as the opinion of our accountants, is for DCG to assume the claim of Three Arrows Capital and replace it with a promissory note payable to Genesis.

The $1.1 billion note, which matures in 2032, represents DCG's assumption of what it owed Genesis when Three Arrows defaulted in June 2022. DCG agreed to transfer and exchange the $1.1 billion unsecured loan Genesis received from Three Arrows Capital for a promissory note loan to DCG, the collection of which is subject to uncertainty, and DCG has not received any cash, crypto assets or other form of promissory payment. DCG effectively assumed the risk of Genesis losing money on the Three Arrows Capital loan, which we were under no obligation to do.

The point is that the $1.1 billion promissory note is not redeemable and does not contain any other similar characteristics of callable debts.In addition, Genesis transferred its claim against Three Arrows Capital to DCG, agreeing as part of the transaction that DCG would use any proceeds from the liquidation of Three Arrows Capital directly to pay the $1.1 billion promissory note.

Notably, in the period following Three Arrows' default, DCG injected additional capital into the Genesis entity by providing it with approximately $340 million in new equity.

What is DCG's role in the restructuring of Genesis Capital?

As an independently operated subsidiary, Genesis has its own board of Directors and management team. The Genesis Board of Directors has established a special committee consisting of two individuals with decades of expertise in finance, law and restructuring to oversee Genesis's restructuring process and any other related matters. Genesis has also hired independent external consultants to lead the restructuring process, including Cleary Gottlieb, Moelis and Alvarez& Marsal.

DCG and its independent outside advisers, including Goodwin Procter, Weil Gotshal and Ducera Partners, have worked effectively with Genesis, its advisers and a specific group of Genesis creditors and their advisers in connection with the restructuring.

Due to outstanding loans and promissory notes owed by DCG to Genesis Capital, senior executives of DCG, including Genesis, have decision-making authority over this reorganization.

Is DCG the subject of an EDNY investigation?

DCG has no knowledge or reason to believe that EDNY is investigating us. DCG is in regular communication with regulators as part of our daily business operations. If we are contacted by any regulator or investigator, we will, as always, openly engage, answer questions and provide any information required.

Does DCG have anything to do with Terra and Luna?

DCG has not purchased, sold, shorted or otherwise traded Terra stablecoin (UST) and has no relationship with the issuer of these tokens.

DCG purchased approximately 60,000 LUNA in late 2021 / early 2022 to assist its subsidiary Foundry in creating pledge nodes. As part of our investment strategy, we did not buy, sell, short or trade LUNA.