Gemini USD — A Primer
Tags: Listings, Stablecoin, Ethereum, Decentralized Exchange, Bitcoin

Gemini Dollar (GUSD) is a newly-launched ERC20 stablecoin with a 1:1 peg to the US dollar.

Summary

Gemini Dollar (GUSD) is a newly-launched ERC20 stablecoin with a 1:1 peg to the US dollar. Issued by the Winklevoss twins’ Gemini Trust Company, which also owns popular centralized exchange Gemini, GUSD claims the title of the world’s first regulated stablecoin. The GUSD/ETH trading pair is now open on DEx.top, a leading Ethereum-based decentralized exchange incubated by Bitmain.

About Stablecoins

The cryptocurrency industry is no stranger to stablecoins, whose value is pegged to stable assets (most commonly USD, though pegs to other fiat currencies and stores of value like gold also exist). However, controversy and inevitable teething problems have dogged the most widely-circulated stablecoins available today such as Tether and Dai, as we will see below.

The utility of a stablecoin is determined by its ability to maintain a peg to the asset it is meant to represent. In turn, this ability depends on how the peg is maintained. In this respect, stablecoins can largely be classified into three categories:

Crypto-Collateralized; Asset-Collateralized; and Algorithmic.

In a potential game-changer for the stablecoin landscape, two companies received the green light from New York state on 10th September to issue cryptocurrencies pegged to the US dollar. One of these is Gemini Dollar (GUSD), which falls into the Asset-Collateralized category.

Introduction to the Gemini Dollar

According to both the white paper as well as official press releases, GUSD will be fully backed by USD with the Gemini exchange serving as its fiat ramp. Hence, its peg is maintained by market forces (since deviation presents opportunities for arbitrage). We examine this point further below. The main stats for the Gemini Dollar are as follows:

Issuance: GUSD will be issued by Gemini Trust Co., the cryptocurrency exchange founded by the Winklevoss twins.

GUSD will be issued by Gemini Trust Co., the cryptocurrency exchange founded by the Winklevoss twins. Supply: GUSD has yet to be listed on Coinmarketcap, but its total supply can be found on Etherscan. As of the time of writing, total supply stands at slightly over 240,000 tokens on Etherscan.

GUSD has yet to be listed on Coinmarketcap, but its total supply can be found on Etherscan. As of the time of writing, total supply stands at slightly over 240,000 tokens on Etherscan. Markets: Apart from issuing exchange Gemini, GUSD is currently listed on three other exchanges: decentralized exchange DEx.top, Bibox, and The Rock Trading. DEx.top is the first exchange to list GUSD and also facilitated the first-ever GUSD trade worldwide, pictured below. Additionally, BTEX has expressed intention to list.

Regulatory Compliance — What Does It Mean?

Gemini Trust Co. operates under the direct supervision and regulatory authority of the New York State Department of Financial Services (NYDFS). Till date, it has granted Gemini a number of approvals:

October 2015 — NYDFS grants charter to Gemini to operate as a trust under New York Banking Law; Gemini must also comply with the state’s BitLicense framework.

NYDFS grants charter to Gemini to operate as a trust under New York Banking Law; Gemini must also comply with the state’s BitLicense framework. May 2018 — Gemini is authorized to offer custody services and trading of Zcash, Litecoin and Bitcoin Cash.

Gemini is authorized to offer custody services and trading of Zcash, Litecoin and Bitcoin Cash. September 2018 — Gemini is authorized to offer a stablecoin pegged to USD.

As a licensed virtual currency exchange, Gemini is subject to a comprehensive set of requirements that include AML, cybersecurity programs, capital and audit requirements and consumer protection measures.

As a stablecoin provider, Gemini is further required to ensure that GUSD is fully exchangeable for USD and implement controls to prevent the use of GUSD in connection with “wrongful uses” such as money laundering, terrorist financing and market manipulation.

To understand the implications of Gemini’s compliance requirements, let’s take a look at a representative project from each of the stablecoin categories mentioned above.

Crypto-Collateralized: BitShares

Stablecoins on BitShares (“SmartCoins”) are created by depositing BitShares (BTS) as collateral, and a minimum collateral ratio ensures that SmartCoins can always be converted back to BTS at the market price.

Issue: Because they are crypto-collateralized, SmartCoin holders need to jump through multiple hoops to cash out in fiat (Smartcoin -> BTS -> Major cryptocurrency -> Fiat). The collateralization mechanism requires a working understanding of margin calls, and furthermore SmartCoins are only available on DEXs based on the Graphene protocol.

Asset-Collateralized: Tether

Tether (USDT) is without a doubt the most well-known and widely-used stablecoin, accounting for over 20% of the entire cryptocurrency market’s daily trading volume at the time of writing. However, USDT has long been the subject of intense scrutiny and criticism due to the opacity surrounding its banking relationships, USD reserves and connection to Bitfinex.

Issue: Tether’s fiat off-ramp has also historically been difficult to access — its most recent announcement on the subject states that only exchanges and qualified corporate customers are eligible to redeem Tether.

Algorithmic: Basis

The Basis project aims to be an “algorithmic central bank” that responds to exchange rate fluctuations by adjusting the supply of Basis stablecoins.

Issue: The peg algorithm is untested, and it is not clear where the initial value of Basis tokens will come from. Basis claims to “implement monetary policy similar to that executed by central banks”, but a crucial source of a currency’s value arises because a nation’s debt and taxes are issued and collected in legal tender.

Note: a comprehensive overview of stablecoins and their functions can be found in Moazzam Khan’s Stablecoin — The Ultimate Manifestation of Cryptocurrencies as well as Nathan Sexer’s State of Stablecoins.

First, GUSD has a clear edge in terms of fiat convertibility. Its regulatory approval allows Gemini Trust Co. to maintain stable banking relationships, which in turn makes it easy for them to maintain smooth fiat on and off-ramps. Gemini will be banking with State Street, a venerable financial services firm headquartered in Boston.

Additionally, as Tony Robbins famously said, complexity is the enemy of execution. GUSD’s dead-simple peg mechanism and audit and capital requirements (for example, auditors BPM LLP will examine Gemini’s USD balances in its State Street account regularly) provide confidence in its ability to hold a 1:1 exchange rate.

Technical Implementation

GUSD has a straightforward issuance mechanism illustrated below. Tokens can only be minted/destroyed through the Gemini exchange.

(Note: Skip ahead to TL;DR for the implications of the way GUSD was implemented.)

The GUSD stablecoin is implemented as an ERC20 token on Ethereum through three core contracts: Proxy, Impl and Store. Their contract code is available to read on Etherscan and has been audited by security firm Trail of Bits, with the full report available here.

The Proxy contract essentially serves as the ‘face’ of GUSD, through which token holders can transfer tokens and view their balances. Its other key function is to delegate the logic governing GUSD’s transfer and issuance to a smart contract called Impl.

The Impl contract is delegated authority to control the core logic for GUSD’s ERC20 specification, and is also responsible for calling the Store smart contract. This contract can be upgraded at any time (by changing the contract instance that Proxy and Store point to).

Lastly, the Store contract holds the mapping that determines balances, allowances and token supply. It can update the address of the Impl contract that it points to, hence allowing for changes in the logic that determines how token balances are updated.

TL;DR

Given the simple issuance and peg mechanism, the main goal driving the design of GUSD’s technical implementation is likely to be compliance. In fact, the whitepaper explicitly states that the design had to grant Gemini Trust Co. the ability to:

Resolve vulnerabilities Extend the system with new features Improve the system and optimize its operational efficiency Pause, block or reverse token transfers in response to a security incident or if legally obligated or compelled to do so by a court of law or other governmental body.

GUSD is a heavily centralized stablecoin, which is the current price to pay for regulatory approval. The smart contract code allows Gemini to unilaterally freeze any user’s account and render all tokens non-transferable, features that might chafe at proponents of decentralization. The upside is a number of practical benefits to token holders: the underlying USD held by Gemini Trust Co. will be insured, held in banks located in the US, and audited monthly. Furthermore, the assurance of convertibility between GUSD and fiat USD 1) provides a reliable fiat off-ramp for the stablecoin and 2) means that GUSD is very likely to stay close to its peg.

Conclusion

GUSD is a promising new stablecoin that has obtained the blessing of regulators. It is issued and managed by a major exchange, providing credibility to the infrastructure and team behind the token. Its ERC20 implementation makes it easy for users to store and everyone else (exchanges, wallets, browsers etc.) to support.

GUSD is currently available on Gemini, and can be traded on decentralized exchange DEx.top. We anticipate fairly rapid increase in adoption in the near future.

About DEx.top

DEx.top is a decentralized exchange platform based on Ethereum smart contracts. It utilizes the innovative Replayed-On-Chain (ROC) mechanism to implement off-chain orderbooks with on-chain settlement, enabling low-cost, secure and instant trading.