Gemini launches offshore derivatives platform as Winklevoss twins tire of U.S. crypto quagmire

After unveiling the plan in late April, the prominent crypto firm founded by Tyler and Cameron Winklevoss announced the move on Tuesday, contributing to a growing trend: U.S.-based crypto firms taking their business elsewhere in response to increasingly hostile regulatory environment at home.

In an exclusive interview with Fortune, the Winklevoss twins said the regulatory morass in the U.S. contributed to their decision to launch Gemini Foundation in Singapore. According to the brothers, Gemini had applied to the Commodity Futures Trading Commission in early 2020 to operate a U.S. derivatives exchange, but they pulled the application in early 2023 after it was “made clear that it was not going to happen anytime soon.” Tyler Winklevoss described the regulatory situation in the U.S. as a “total logjam.”

“If we can’t do it in the U.S. right now—dramatically grow our business and bring crypto to folks here—that’s not going to stop us from bringing it globally,” he told Fortune.

Looking globally

Derivatives trading, which involves more complex forms of financial instruments based on underlying assets like Bitcoin or Ether, has proven popular on exchanges with overseas operations, including Binance, Deribit, and, until its November collapse, FTX. Outside of the U.S., the practice is open to retail users, including a popular form of derivatives trading native to cryptocurrency called perpetual future contracts, which allows customers to speculate on the price movements of assets without owning them and without having to lock in a settlement date.

Because crypto derivatives trading is highly restricted in the U.S., exchanges focus on spot markets, or trading on the current price of assets. Some crypto platforms, like Binance, have a special U.S. arm that excludes derivatives trading.

Tyler Winklevoss described derivatives as an important offering for marketplaces, as they allow users to hedge and manage risks. By launching outside of the U.S., Gemini’s new platform allows users to trade Bitcoin perpetual contracts with up to 100x leverage, or the amount they can multiply their exposure, with plans to also launch Ether perpetuals in the coming weeks. The service is targeted at both retail and institutional traders and will exclude the U.K. and EU.

Gemini has long worked with U.S. regulators, including receiving a trust charter from the New York Department of Financial Services in 2015. “We are gluttons for thoughtful regulation and licensing,” Cameron Winklevoss told Fortune. The brothers pointed to New York as an example of a jurisdiction that had created a regulatory framework by offering trust charters and BitLicenses to digital assets companies and subsequently attracted firms to operate in the state.

Despite its compliance efforts, Gemini has run into operational challenges in the U.S. In June 2022, the CFTC sued Gemini, alleging that it made “false and misleading statements” in its efforts to launch the first U.S.-regulated Bitcoin futures contract in 2017—a separate process from its 2020 application with the agency to launch a derivatives exchange.

“We have an eight-year track record of asking for permission, not forgiveness, and always doing the right thing. We look forward to definitively proving this in court,” the firm said in a statement at the time.

In January, the Securities and Exchange Commission charged Gemini with the unregistered offer and sale of securities through its Gemini Earn lending service. Under the program, users could earn a yield by loaning crypto assets to Gemini through the Digital Currency Group-run entity Genesis.  

The arrangement between the two firms developed as crypto winter worsened, with Genesis blocking Gemini investors from withdrawing assets after it lost significant capital due to the collapse of FTX. The two companies are currently embroiled in negotiations after Genesis declared bankruptcy in January.

In a tweet after the SEC’s lawsuit, Tyler Winklevoss expressed disappointment about the action, writing: “Their behavior is totally counterproductive.”

“It’s unfortunate that they’re optimizing for political points instead of helping us advance the cause of 340,000 Earn users and other creditors,” he continued.

For the Winklevoss twins, the offshore exchange—the first Gemini product focused outside the U.S.—signals a new stage for the firm, which they founded in 2014. They said still hope to launch a derivatives product in the U.S.

“We’re not leaning out of the U.S.,” Tyler Winklevoss told Fortune. “We’re just leaning into being a global company.

“If lawmakers could come together and build a clear framework for crypto companies, it would be a huge boon for the U.S., and a huge boon for consumers, innovators, and investors.”