Gemini Announces Launch of USD-Pegged Cryptocurrency
This morning, U.S.-based exchanged Gemini announced on their blog the launch of a new cryptocurrency called the Gemini dollar. Each Gemini dollar is pegged 1:1 with the U.S. dollar, meaning there is one U.S. Dollar held in reserve for every Gemini dollar issued, and Gemini dollars can be redeemed for exactly $1 at any point in time. In short, it is “a digital representation of the U.S. Dollar.”
The Gemini dollar marks the first time a USD-pegged stablecoin has been issued by a major U.S. exchange. The U.S. dollars backing the Gemini dollar will be held in a fully FDIC-insured account with State Street, and will be audited frequently by various third parties. This may seem like mere logistics, but it’s important. Over the past year, leading stablecoin Tether has been the subject of an ongoing controversy.
Tether claims to be backed 1:1 by the U.S. dollar — hence the name; it is “tethered” to the dollar — just like the Gemini dollar, but it has never fully proven its reserves, and the founders have provided sparse information about where the reserve money is being held. There is even a well known Twitter account, Bitfinex’ed, dedicated to exposing Tether and its role in the exchange Bitfinex. The implications of there being insufficient U.S. dollars backing Tether would be enormous — if each Tether is not actually worth $1, then Tether holders would rush to redeem their Tether out of fear of being too late and holding an effectively worthless currency. (There is perhaps no better explanation of this phenomenon than the run on the bank scene from It’s a Wonderful Life.) This would not only collapse the currency, but could potentially send the entire cryptocurrency market into a tailspin.
The Tether controversy has died down in recent months, but still persists. Since the Gemini dollar is held in an FDIC-insured account, it will likely avoid any such fears about its legitimacy. Indeed, in his blog post announcing the launch of the currency, Gemini co-founder Cameron Winkelvoss called it “the world’s first regulated stablecoin.”
In order to explain the benefit of the Gemini dollar, the company employed an interesting analogy. In an email to Gemini users this morning, the company led off with the line: “Imagine being able to send and receive U.S. dollars like email.” Furthering this metaphor, Winkelvoss continued in his blog post:
“While cryptocurrencies operate 24/7/365 (similar to email), fiat currencies only operate during specific “business hours” (like snail mail) — a fundamental mismatch. As a next step in our mission, we must improve the linkage between these worlds by giving fiat currency the same desirable technological qualities of cryptocurrencies.”
If you’ve ever tried to make a wire transfer on a weekend, you know what Winkelvoss is talking about. Since fiat currency (like the U.S. dollar) is primarily transferred via banks, the process of transferring it from one party to another is contingent on bank hours, nationally and internationally. However, cryptocurrency does not rely on any third party or clearinghouse to be transferred, or even traded on exchanges.
But the benefits to the Gemini dollar extend beyond transferability. Stablecoins provide increased liquidity — defined by Investopedia as “the degree to which an asset… can be quickly bought or sold in the market without affecting the asset’s price — the to the cryptocurrency market. Traders can move into and out of stablecoins from Bitcoin and altcoins with speed and ease, without changing the value of the stablecoin. This provides stability to the cryptocurrency market, and represents another step in its maturation.
The Gemini dollar is built on the Ethereum blockchain as an ERC20 token. As of 10am Eastern Time this morning, it is available for trading on Gemini under the ticker symbol GUSD.