In a significant legal decision, Genesis, the bankrupt crypto lender that collapsed following the failures of the Terra/Luna ecosystem and Three Arrows Capital, has won approval for its bankruptcy plan in a U.S. court. This approval came despite objections from Genesis' parent company, Digital Currency Group (DCG).

U.S. Bankruptcy Judge Sean Lane dismissed the complaints from DCG, the Genesis Crypto Creditors Ad Hoc Group, and the Office of the United States Trustee, ruling in favor of the plan. This decision will return approximately $3 billion in cash and assets to creditors.

DCG had contended that claims should be valued in U.S. dollars based on the company's bankruptcy filing date in January 2023, thereby ignoring nearly 18 months of gains in the crypto sector. However, Judge Lane rejected this argument, noting that DCG does not have an economic stake in the plan. He stated, "The record here clearly establishes that there is not sufficient value in the Debtors’ estates to provide DCG a recovery as equity holder after unsecured creditors are paid."

The approved plan outlines a "multi-step process that allocates assets to creditors by claim denomination and values these assets for distribution purposes." Essentially, creditors owed cryptocurrency will be treated differently than those owed U.S. dollars. Due to the rise in digital asset prices since the bankruptcy filing, creditors with claims in U.S. dollars are expected to receive 100% of their loan balance, deferring post-petition interest payments. Conversely, those with cryptocurrency claims will face a shortfall in funds.

Judge Lane's ruling allows for the possibility of an appeal by DCG, but as Bloomberg reports, it's unclear on what legal grounds DCG could base such an appeal given the significant asset shortfall.

In response to the court's decision, the Gemini exchange, owned by the Winklevoss twins, issued a statement calling the ruling a "welcome decision." They clarified that this ruling does not affect the global settlement among Gemini, Genesis, and other creditors previously approved by the Bankruptcy Court.

As part of the settlement related to Gemini Earn, creditors will start receiving their owed assets at the beginning of the month. About 97% of the owed funds will be initially repaid in-kind, meaning customers who deposited one bitcoin will receive that bitcoin back, rather than its U.S. dollar value at a specific date.

This approach contrasts with FTX's bankruptcy response, which plans to reimburse customers based on the U.S. dollar value of their claims at the time of FTX's bankruptcy filing.