Tyler & Cameron

Winklevoss twin’s create a Stable$, wither Tether?

The Winklevoss twins, have announced (via Gemini Crypto Exchange) that they are launching a new regulated stablecoin based on Ethereum

What we know so far about the Gemini dollar (GUSD) :

• Regulated
• Openly ‘audit’able. An appointed auditor will publish monthly audit reports. These reports will be available to the general public.
• Backed by 1:1 US$ deposits for each token in circulation
• Pegged to parity with US$
• Stored in a 3rd party custody
• Eligible for Federal insurance cover (FDIC)
• Based on the Ethereum Blockchain (ERC20) but characterised by a permissioned smart contract
• Ready for trading from today, 10th September 2018

Excerpts from The Gemini Stablecoin White Paper

Why is this news a big deal?

1. There were wide spread allegations against Tether, the incumbent leader in stable coin adoption, did not have enough Cash reserves to back every USDT in circulation. Tether denies these allegations. However, an audit was never performed (a legal firm issued a memo that Tether has sufficient reserves to cover its tokens, if called. However, the law firm’s memo makes it specifically clear that their memo is not to be construed as an audit, nor to be used as assurance).
2. The Commodity Futures Trading Commission (CFTC) reportedly subpoenaed both Tether & Bitfinex (the crypto exchange that shares its owners with Tether)
3. The vacuum (until today) in the regulated stable coin domain was an opportunity that was always too big to pass
4. Marketcap of USDT was US$ 2.7B today (10th Sep).
5. Being Regulated & routed through 3rd party custodian, GUSD is positioned to attract institutional capital. This makes the failed attempts of Crypto ETFs rather irrelevant for the time being as institutional capital will view GUSD as an equivalent substitute crypto instrument
6. Allows other Cryptofinancial products to be built on top of this offering. Gemini could always bundle such instruments to ease onboarding & adoption.

Why it MAY not matter in the long run?

• There are bound to be many more such instrument offerings in the near future.
• Infact GUSD is not alone. In the same breath, Paxos Stablecoin was also approved by the New York government as a regulated & insured stable coin. GUSD got the larger limelight due to the Winklevoss connection.
• Supply of regulated stable coins will dramatically increase over the next 180 days. The new supplies will overwhelm the demand in the medium term
• If Stable coins are Crypto Dollars backed by Fiat Dollars, then just having more of them available doesnt make Bitcoin any more valuable than it already is. Or in other words, once the initial necessity of having a regulated conduit has been satisfied, the usage of stable coins may revert to the mean. The mean in this case, is to be worked out in the future.

What’s in it for the wolves on the Wall Street?

Banks are traditionally slow in adopting new technologies. Blockchain is disrupting the biggest revenue driver in this segment, fees.

‘Free & near instant’ P2P Crypto transactions was the massive attraction for those driven to wits end with traditional banking.

The traditional system is fossilised but will not give up their grip of the global financial market easily. Stable coins are an attractive route for Banks to start implementing their ‘fee based’ model in crypto.

The news of Citi bank developing Crypto depositary receipts (similar to USD denominated ADR) follows this line of thought.

Banks have access to Trillions of Dollars. Banks may come to view Stable coins as means to continuing the fee-based model around the crypto space.

For instance, HSBC Stable$ may be offered to HSBC bank customers within the app as a convenience for quick conversion to Bitcoin. It will be a ‘coinvenience’ than a convenience as HSBC will induce a transaction fee for saving you the time & effort.

One of the hardest challenges in the US financial system is to obtain Money transmission licenses & money services business licenses in all the 50 states & at a federal level. Banks will protect their own turf against crypto companies in access at the state & federal levels

FAQ:

Q: Will GUSD be KYC’d?

A: It has to be. Money Transmission License requires the operators to KYC users.

Q: I don’t understand the choice of blockchain architecture. A private / public combination? Why?

A: Presumably, Gemini has done its extensive research on this one. In my opinion, a permissioned smart contract that sits on top of a public ethereum blockchain is simply a mechanism to draw on the strengths of each. Ethereum provides the security & auditability while permissioned walls provide the ledger’s privacy

Q: Wither Tether?

A: May not be the case in the long run. I don’t believe its a zero sum game. But for fun’s sake, why not?

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