Gemini Dollar (GUSD): A Transparent Stablecoin

Stablecoins Explained

1. What is a stablecoin, and how does it work?

A stablecoin is a type of cryptocurrency designed to maintain a stable value by pegging it to a fiat currency, commodity, basket of assets, or by using algorithms to control its value. 

2. How do stablecoins maintain stability?

Stablecoins achieve stability through various methods, including:

Fiat-Collateralized: Backed by a reserve of fiat currency (e.g., USD, EUR) held in a bank account for each issued coin.

Crypto-Collateralized: Backed by other cryptocurrencies, typically held in a smart contract.

Algorithmic: Algorithms adjust the coin's supply based on demand to keep its price stable.

3. What are the common types of stablecoins?

Common types include:

Fiat-Collateralized: Tether (USDT), USD Coin (USDC), Gemini Dollar (GUSD).

Crypto-Collateralized: Dai (DAI)

Algorithmic: Frax (FRAX)

GUSD: A Transparent Alternative to Earlier Fiat-Backed Stablecoins 

In contrast to bitcoin (BTC) and other traditional cryptocurrencies, which tend to display extreme price fluctuations, a stablecoin is a cryptocurrency built to maintain a steady value. Stablecoins achieve price stability in a variety of ways. Some rely on advanced computation, while others peg (or bind) their value to an underlying asset such as gold or fiat currency (e.g., the Euro or the U.S. dollar). The most commonly used stablecoins are those pegged one-to-one with the U.S. dollar (USD). These stablecoins maintain value by holding one USD in reserve for each stablecoin issued.

The Gemini dollar was designed to provide a transparent and regulatory compliant connection between traditional financial systems, which are based on fiat currencies, and the ever-growing blockchain industry. Released on September 10, 2018, GUSD is an ERC-20 token that can be stored in any digital wallet that accepts Ethereum tokens.

How is GUSD Regulated? 

Gemini secured a New York state charter in 2015, and was one of the first cryptocurrency exchanges to become fully regulated in the United States. It is subject to New York banking laws and the regulatory authority of the New York State Department of Financial Services (NYDFS). Gemini has proactively developed its relationship with legal and regulatory bodies in order to foster trust between the traditional financial system and blockchain community. Notably, Gemini was the first exchange to apply for and be designated as a New York Trust Company.

Each GUSD corresponds to a U.S. dollar that is held by Gemini as one of the following types of assets: (1) deposits in accounts at U.S. Federal Deposit Insurance Corporation ("FDIC")-insured banks; (2) money market funds, invested only in U.S. Treasury Obligations, or (3) U.S. Treasury Obligations. The U.S. dollar cash portion of these GUSD reserves, which may be held at State Street Bank and Trust Company, Goldman Sachs, or Fidelity may be eligible for FDIC “pass through” insurance for Gemini customers in the event that the bank holding such U.S. dollar cash deposits becomes subject to resolution or similar proceedings by the FDIC. 

Overall, Gemini Trust makes use of a centralized system that helps protect against security threats, giving the Gemini dollar key regulatory advantages over many of its competitors.

GUSD Reserve Attestations: Secure, Audited and Regulated 

GUSD is audited on a monthly basis by BPM, a private and independent accounting firm that ensures there is parity between the amount of USD in reserve and the amount of GUSD in circulation. To further maintain transparency, anyone may view GUSD’s transaction history along with its current price, market cap, and other pertinent data on an Ethereum network block explorer such as EtherScan or EtherChain (bear in mind that GUSD is an ERC-20 token built on the Ethereum network). Using such a block explorer, all parties can openly view the total number of GUSD in circulation at any given time, which encourages a system of mutual trust between Gemini and its users.

The primary channel for buying and selling GUSD is the Gemini exchange. However, the Gemini Dollar is also available to trade on a number of exchanges and supported by many platforms in the cryptocurrency ecosystem (see all exchanges and platforms). Gemini implements a number of security measures — including full Know-Your-Customer (KYC) and Anti-Money-Laundering (AML) screenings — to ensure that GUSD remains transparent, secure, and regulated for its users.