Cameron and Ty Winklevoss, founders of cryptocurrency exchange Gemini, today announced the launch of the Gemini dollar, the world’s first regulated stablecoin.
According to the company’s announcement, the stablecoin is pegged to the US dollar.
“Enter the Gemini dollar – a stable value coin (often called a ‘stablecoin’) that is (i) issued by Gemini, a New York trust company, (ii) strictly pegged 1:1 to the U.S. dollar, and (iii) built on the Ethereum network according to the ERC20 standard for tokens. The Gemini dollar (ticker symbol: GUSD) combines the creditworthiness and price stability of the U.S. dollar with blockchain technology and the oversight of U.S. regulators, namely, the New York State Department of Financial Services (NYDFS).”
The stablecoin allows Gemini customers to convert US dollars into Gemini dollars and withdraw them to an Ethereum address. Gemini customers can also convert Gemini dollars into US dollars by depositing them into their Gemini account.
While there are many stablecoins on the market, current alternatives such as Tether (USDT) and True USD are unlicensed.
The announcement comes nearly two months after the US Securities and Exchange Commission rejected the Winklevoss Bitcoin ETF proposal, making the Gemini dollar, approved and regulated by the NYDFS, more than a key utilitarian function for cryptocurrency traders seeking liquidity. It broadens the scope of trust in cryptocurrencies and shifts the conversation away from the narrowly drawn portrait of cryptocurrencies and criminals.
New York-Based Gemini, which uses Nasdaq surveillance technology to monitor its order books, is adding a significant layer of trust for consumers and institutional investors with the Gemini dollar, stepping up where it failed with the SEC by providing a platform that feels safe.
To move cryptocurrencies to the next echelon where they can become mainstream, exchanges around the world will need many more such layers and seals of approval. Regulatory approvals work to minimize the risks associated with crypto investments by affirming the soundness of the underlying assets. Regulations also affirm the broader concepts of cryptocurrencies, particularly the idea of decentralized networks.
Along with the Gemini dollar, the NYDFS has sanctioned a newfangled financial system that merges the principles of centralization and decentralization. Where a purely decentralized ecosystem is often criticized for being full of libertarian idealism that serves dangerous anarchists and criminal minds, a centralized organization is often accused of operating in the shadows to abuse its power.
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The regulated hybrid lies somewhere in the middle, as it promises to take the best of both worlds to create trust on both sides of the aisle. By building a critical bridge between diametrically opposed players, it’s the first regulated effort to design a digital economy powered by cryptocurrencies built on the fundamentals of the US dollar.
Critics point out, however, that pegging any cryptocurrency to an inflationary currency is counterintuitive and bad for crypto, since crypto is inspiring a distinctly new type of digital economy that’s backed by mathematics and not the arbitrary economic agendas of nation states.
The Gemini dollar, to that point, is an experiment, with Ethereum at its core.
“The specifications of the Gemini dollar require a network that allows for the development of decentralized applications (including smart contracts) that may be used to store and transfer value according to certain conditions set by the developer. The Ethereum network fulfills this criteria and has a technical standard for tokens, the ‘ERC20’ standard [4], which has experienced widespread, global adoption…
Consequently, the Gemini dollar can be transferred on the Ethereum network and stored in any Ethereum address.”
As the issuer of Gemini dollars, the company maintains distinct controls, despite its smart contracts-based architecture. It will have the power to
1) Resolve vulnerabilities.
2) Extend the system with new features.
3) Improve the system and optimize its operational efficiency.
4) Pause, block, or reverse token transfers in response to a security incident (i.e., catastrophic event) or if legally obligated or compelled to do so by a court of law or other governmental body.
To mitigate any appearance of being opaque and to avoid the controversies that have plagued Tether, Gemini is immediately establishing transparency.
“The US dollars that correspond to the Gemini dollars issued and in circulation will be held at a bank located in the United States and eligible for FDIC ‘pass-through’ deposit insurance, subject to applicable limitations. In addition, the U.S dollar deposit balance will be examined monthly by an independent registered public accounting firm to verify the 1:1 peg. All Independent Accountants’ Reports will be publicly available here. Further, the smart contracts underlying the Gemini dollar token have been fully audited and formally verified by an independent security firm, whose report is publicly available here.”
Building trust in the cryptocurrency space seems to be the primary goal. Now we have to see how the markets will actually respond to the Gemini dollar and the emerging class of cryptocurrency stablecoins.
