Winklevoss exchange Gemini launching new stable coin

REUTERS/Stephen Lam

• Gemini, the cryptocurrency exchange, is launching its
  own stable-coin pegged to the US dollar, the company announced
  Monday. 
• The firm hopes the crypto will become a digital cash,
  bringing together the best of fiat and blockchain
  assets.
• Gemini says the crypto’s design, which includes
  oversight by US financial regulators and monthly audits, will
  make it a more attractive alternative to other stable-coins,
  including Tether. 
• Gemini will store the US dollars backing its coins at
  State Street. 
• Business Insider spoke with Tyler Winklevoss, the
  co-CEO of Gemini, about the project. 

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Gemini, the bitcoin exchange founded by the Winklevoss twins, is
gatecrashing a red-hot corner of the cryptocurrency market with a
new stable coin, the company announced Monday. 

The so-called Gemini dollar would be pegged to the US dollar,
with each token backed by a US dollar in a reserve of cash held
by State Street, the Wall Street custody bank. The firm is hoping
the new coin, which is based on Ethereum’s network, will serve as
a new type of digital cash that can be used at stores by
customers. 

The project, which is over a year in the making, addresses “a
trust problem” common among other stable-coins, according to its
white paper.

Gemini says oversight from financial regulators, specifically the
New York Department of Financial Services, will lend its crypto
more credibility than its competitors. The crypto is also subject
to New York Banking Law, according to the exchange
operator. 

Already, it was assessed by information security company Trail of
Bits over the course of eight weeks. Gemini, according to
documents reviewed by Business Insider, fixed all the issues
discovered by the audit.

Entrepreneurs
Tyler and Cameron Winklevoss arrive at the Met Gala in New
York
Thomson
Reuters

The Gemini dollar would go head-to-head with Tether, the
controversial firm behind their USDT stable-coin that has
dominated the market for stable coins. Skeptics have questioned
whether Tether actually has the dollars it says to back its
crypto.

And some market participants have linked the crypto to market
manipulation. For instance, academics at the University of
Texas published a
paper alleging that Tether was used last year to manipulate the
price of bitcoin, propping up its run to $20,000 in
December.

Still, since the beginning of 2018 trades between USDT and
bitcoin have become more common, Morgan Stanley found. The bank,
which compiled data from over 350 exchanges, estimates 14.2% of
bitcoin trades are paired against USDT, up from less than 1% in
October.

Across the crypto space, projects are attempting to step on
Tether’s turf, including TrueUSD and MakerDAO.

The Gemini dollar will launch next week and will ultimately trade
on numerous exchanges, according to a spokeswoman. 

Business Insider spoke with Gemini cofounder and co-CEO Tyler
Winklevoss about the project and related topics in the
cryptocurrency space. 

Business Insider: Walk me through the evolution
of this project. What’s the idea behind it and how did it come to
fruition?

Tyler Winklevoss: We have been thinking about
the stable coin idea for over a year now. The thing that is
attractive about the concept is that is does something different
than any other digital asset. When we think about the first ever
digital asset, bitcoin, which is a virtual commodity, it took
years for the market to sort out the broad understanding of what
bitcoin is. The legal precedent and the use-case is definitely
coming down as virtual commodity. And ether is the same. Those
are very cool use cases. Ether as a digital oil. And bitcoin as a
digital gold. The idea of a digital commodity is there and well
understood. 

And then we had the intro of securities on the blockchain,
normally referred to as ICOs, representing a share in a company
or project. Being in this space over the years it has been
really cool to see the development of both virtual securities and
virtual commodities. 

But when something is a store of value, you generally don’t want
to spend it. We use the word digital currency as an umbrella term
in this space, and early on this term was used, but not many of
these digital assets behave like currencies. And it makes sense.
You don’t buy things with your gold or with your shares of Apple.
Similarly it doesn’t make sense to do that with an ICO or
bitcoin. A stable coin is different and necessary for the
ecosystem as that medium of exchange.

BI: What problems does Gemini dollar try to
tackle?

Winklevoss: We saw two problems we wanted
to address when we thought about how we could build a viable
stable coin. The first was the technical implementation. A
computer science problem. Making sure you have the smart
contracts, picking the right network. Ether was a good network
obviously because of the human capital around it, the level of
adoption, its track record. And building the engineering of a
viable stable coin. That’s where Gemini’s strong team comes
in. 

Then there’s trust. Whether we print too many or too much, we
need to make sure it corresponds with the fiat dollars in a bank
account. As a trust company, we are regulated by the state of New
York, but the trust problem doesn’t start or stop there. It is
about building a network of trust among all participants in the
ecosystem. Multiple eyes are looking over it.

Getting on an auditor is not a trivial task. They have to be
comfortable with you as a business. That was another interesting,
but good challenge. And getting ready for approval takes a long
time.  

[Editor’s note: Gemini’s US dollar balance held at State Street
will be audited by an independent accounting firm on a monthly
basis, according to a news release.]

Carl Court / Getty
Images

BI: 
Stable-coins such as Tether have been a darling
among trading shops that can use them to quickly transfer their
coins out of the volatile markets of bitcoin and other cryptos
without having to engage with the slow fiat off-ramps. Have you
been speaking with those market participants about Gemini dollar,
and what is their impression?

Winklevoss:
We obviously talk to all of our clients,
retail, prop shops, market making firms, trading firms, sometimes
one firm can do all of those things and more. There is a lot of
demand there. We thought a stable coin was important for the
ecosystem. But we also have seen a lot of demand from those
clients. And so basically bringing USD onto the blockchain is key
here. Linking the traditional financial network with the world of
crypto in the way that includes all the good utilities of money,
giving them all the positives things of crypto. The obvious use
case for a trader is arbitrage or being able to move capital
around in an efficient matter. 

It is not just demand coming from
traders. I think that dollars on the blockchain is a
real
ly important and crucial
component. We do think that a good stable coin is a really
important catalyst to adoption. Because there is a reason why
fiat lives side-by-side with stocks, bonds, and precious metals.
They don’t cannibalize each other because they
fulfill different use-cases. 

There is a use case of being able
to accept dollars for decentralized applications. They can accept
bitcoin and ether. But if you are creating a decentralized Uber,
people aren’t going to want to pay with an asset that most of us
believe could go up 10 or 20 times in the future. 

BI:

Across the market, I’ve noticed
bitcoin exchanges entering businesses outside of trading,
including custody or venture and now in your case, the
stable-coin business. Do you view the role of exchanges in crypto
as being more than just facilitating trading in order to help
shepherd the market to the next level?

Winklevoss: I
think that a lot of us, and especially the good actors, are
definitely proactively doing things we don’t have to do. Or
aren’t required to do. But it is a longterm approach. This is
something we have to do to push the ecosystem forward. And we
want to see the market continue to mature. Wall Street is aware
of digital assets it isn’t really in cryptocurrencies today the
way it can be in the future. 

If we want compliance departments
at banks to get comfortable then we have to speak their language.
Whether that means the right internal controls, or a SOC2
designation, than that is what it means. 

The big point is market
surveillance.
The Virtual Commodity Association we are obviously going to be a
member in pushes the ball forward. All of those things are
going to help mature the market. And it’s also just time as well.
You can’t build markets and trust over night. it is so young and
so early. But also a lot has changed in a short amount of time. A
couple years ago the conversations were so different. And even a
year ago, there’s been tremendous change. 

BI:

In order to get Gemini dollars to
become digital cash, one would think big merchants would have to
come on board. Is Gemini talking with merchants like Starbucks to
accept the stable-coin at their stores?

Winklevoss: That’s a
great point. There was a time in this world when people didn’t
know if bitcoin would kill fiat or the financial system or both.
And some people tried to live off bitcoin for a month. As it
turns out people generally don’t believe bitcoin will be used to
buy Starbucks or a Happy Meal. The question is actually does it
disrupt gold or exist side-by-side precious metals in a
portfolio? The beauty of a stable coin is you don’t need to worry
about spending it. And groups don’t need our permission to use
it. Starbucks could accept it if they wanted to. And we will be
open to those conversations.