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Gemini-The Global Stablecoin Ecosystem-100

A look at the different types of stablecoins, as well as the benefits of stablecoins and how they benefit the DeFi and cryptocurrency ecosystem.

What Are Stablecoins? The Global Ecosystem

Stablecoin technology drives innovation, provides an on-ramp to the crypto ecosystem, and bridges traditional finance with DeFi.

The Global Stablecoin Ecosystem

Stablecoins

Explore our collection of Cryptopedia articles related to Stablecoins. Discover new topics and the latest insights.

Stablecoins Articles - Cryptopedia

USD Coin (USDC) — A Stablecoin Pegged to the U.S. Dollar@2x

What is USD Coin, and what is the point of a stablecoin? Discover benefits of stablecoins and differences between fiat-backed stablecoins and other stablecoins.

What is USDC? USD Coin (USDC) — A Stablecoin Pegged to the U.S. Dollar

USDC is a stablecoin cryptocurrency designed to maintain a constant value of $1 USD.

USD Coin (USDC) — A Stablecoin Pegged to the U.S. Dollar

The collapse of Terra in 2022, the fall of Silicon Valley Bank earlier this year, and the accompanying USDC depegging event have raised critical questions about stablecoins and associated risks. How can investors diversify their stablecoin holdings to mitigate counterparty risk, what types of infrastructure solutions for stablecoin redemption and creation are required to satisfy extreme volumes?

Claire Ching, Gemini’s Head of Institutional, and Kevin Yedid-Botton, Partner at ParaFi Capital, dove into these questions and more during a recent Gemini Webinar. 

<details>youtube link</details>

They explored __stablecoin risk management__, discussed why __stablecoin diversification__ is critical for players in the crypto space, and demystified the __range of components__ underlying these types of crypto tokens, ultimately shedding light on the dynamic stablecoin landscape. 

Below, we tease out three salient takeaways from the conversation between Claire and Kevin. 

### Diversification Can Protect Against the Unexpected

Despite the variety of dollar-based stablecoins, including [Gemini dollar (GUSD)](https://www.gemini.com/dollar), [USD Coin (USDC)](https://www.gemini.com/prices/usd-coin), and [Tether (USDT)](https://www.gemini.com/prices/tether), diversification is central to a sound stablecoin portfolio. A main differentiator between dollar-based stablecoins is their reserve backing composition, with treasury management teams for each issuer using varied approaches to ensure the token’s 1-to-1 backing. 

To highlight the importance of diversification, Claire and Kevin discussed an example from June when the U.S. government was edging closer to its debt ceiling, and was struggling to get the votes in Congress to raise it. Some stablecoin issuers hold a large amount of their reserves in short-term U.S. treasuries. With the looming risk of U.S. debt default, these issuers made adjustments to their collateral reserve strategy in an effort to mitigate any potential fallout. 

Circle, the company behind USDC, publicly shifted a large portion of its stablecoin reserves away from those short-term treasuries into overnight repurchase agreements (another type of short-term loan used by treasury traders). 

Gemini took a different approach to backing GUSD, known as a barbell approach. We adjusted our treasury holdings to avoid maturity dates during the period that a potential government default could occur (with most treasuries maturing before and after that period, hence “barbell"), reducing exposure to the debt ceiling standoff. 

Overall, Tether has a separate strategy. While it holds a large portion of its USDT reserves in treasuries, it also includes allocations to precious metals, bitcoin, secured loans, and other investments. 

The chart below outlines where these different stablecoin issuers hold their reserves, how they responded to the debt ceiling crisis, and what their reserves looked like as of May 31, 2023 (GUSD and USDC) or as of March 31, 2023 (USDT).

![Blog Stablecoins chart (7)](//images.ctfassets.net/jg6lo9a2ukvr/4P7DDdHhqFutM9ApUW0yTz/277391f096983b5759e59d422cfa3800/Blog_Stablecoins_chart__7_.png)

Sources: [GUSD May Attestation](https://assets.ctfassets.net/jg6lo9a2ukvr/3b9wPZkq9B6J7u2RKB30w4/47ca0a037a6fc61a998344bde28604be/Gemini_Dollar_Examination_Report_05-31-23.pdf), [USDC May attestation](https://www.circle.com/hubfs/USDCAttestationReports/2023/2023%20USDC_Circle%20Examination%20Report%20May%202023.pdf), [Blackrock Circle Reserve Fund](https://www.blackrock.com/cash/en-us/products/329365/circle-reserve-fund), and [USDT Quarterly Attestation](https://assets.ctfassets.net/vyse88cgwfbl/24G4DuQ0HE7h7EQE6vGy4J/8a8a170edf687ea07b3f86048af8b87b/ESO.03.01_Std_ISAE_3000R_Opinion_31-03-2023_BDO_Tether_CRR.pdf). (Percentages rounded to the nearest whole number)

These differences in underlying compositions raise important questions. How well do investors understand the composition of stablecoins? Do they fully grasp an issuer’s treasury management strategies and how reserves are managed? Treasury strategies are crucial for an issuer to effectively redeem stablecoins as needed, particularly during times of crisis.

### Ensuring Seamless and Reliable Creation and Redemption 

Ultimately, the seamless creation and redemption of stablecoins should be the primary concern for any stablecoin issuer. Some issuers do that better than others. GUSD, for example, can be created and redeemed on Gemini in a few steps, all you need is a Gemini account. Similarly, USDC, can be created and redeemed through Coinbase and Circle.

In the case of USDT, the average person lacks direct access to the creation or redemptions levers. Instead, they are reliant on the secondary market, which can lead to significant swings in the value of USDT (not preferable given that these tokens are meant to remain “stable”). 

As Silicon Valley Bank collapsed, USDC’s exposure to the bank raised concerns and the token traded as low as $0.88 USD during that fraught weekend. As arbitrageurs sold USDC for USDT, the price of USDT rose nearly 10% on some exchanges, and didn’t fall back to $1 USD for some time as few individuals have an easily accessible venue to redeem their USDT for dollars. 

This year’s banking crisis highlighted the importance of not only having access to multiple market venues for trading stablecoins, but also the need for institutions to diversify their avenues for creating and redeeming stablecoins.

### Understanding the Components Underlying Stablecoins 

When evaluating dollar-backed stablecoin risks, investors should consider not just the token itself, but also multiple layers of underlying technology and financial infrastructure. The bedrock is the U.S. government, since dollar-backed stablecoins are ultimately U.S.-based and track the value of the dollar.

[Explore different types of stablecoins here](https://www.gemini.com/blog/understanding-stablecoins-theyre-not-all-created-equal). 

There are other elements to consider, too. Banking institutions, trust companies, insurance, blockchain networks, and smart contracts all come into play as other important components to evaluate when assessing a stablecoin. These components create a nested layering of financial and technological infrastructure that must come together seamlessly for the efficient functioning of stablecoins. 

The variation in these components shows that all stablecoins are not created equal, and highlights how stablecoin diversification can help investors more effectively manage risk.

[Click here to learn more about GUSD and to view our monthly reserve attestations](https://www.gemini.com/dollar).

Last month’s [webinar](https://youtu.be/Q2mQcwz_Kwk) with Claire and Kevin set the stage for a greater understanding of stablecoins and the considerations investors should keep in mind. Keep an eye out for more Gemini webinars that will explore important questions in crypto and blockchain. 

Onward and Upward!

Team Gemini

stablecoins (1)

Claire Ching and Kevin Yedid-Botton discuss stablecoin risk management, diversification, and more.

Stablecoin Webinar

Gemini Webinar Recap: Exploring Stablecoin Risk Management and Diversification

*Welcome to our Weekly Market Update.** *Explore weekly crypto price movements, read a quick digest of notable market news, and dive into a crypto topic — this week we’re discussing stablecoins.*

<a href="#Crypto Movers This Week" target="">__Crypto Movers This Week__</a> 
<a href="#What Happened This Week" target="">__What Happened This Week?__</a> 
<a href="#Crypto Topic of the Week" target="">__Crypto Topic of the Week - Stablecoins__</a>

![Blog Inline 03](//images.ctfassets.net/jg6lo9a2ukvr/6NjikZ3DzdLHZdqBx8G1oG/87208c48dc03f7b455a92a1085b1de34/Blog_Inline_03.png)



## Crypto Movers This Week (7D)

[Bitcoin (BTC) Price](https://www.gemini.com/prices/bitcoin) | ⬆️ 32.30% | $26,424
---
[Ether (ETH) Price](https://www.gemini.com/prices/ether) | ⬆️ 21.20% | $1,718
---
[Immutable X (IMX) Price](https://www.gemini.com/prices/immutable-x) | ⬆️ 64.60% | $1.396
---
[Liquity (LQTY) Price](https://www.gemini.com/prices/liquity) | ⬆️ 62% | $2.715
---
[Mask Network (MASK) Price](https://www.gemini.com/prices/mask) | ⬆️ 59.90% | $4.47
---
Crypto prices as of Friday, March 17, 2023, at 11:55am ET. Percentages show movement over the past seven days. [Check out the latest crypto prices here](https://www.gemini.com/prices). 

New to Gemini? [Sign up for an account here](https://exchange.gemini.com/register).
![Blog Inline 03](//images.ctfassets.net/jg6lo9a2ukvr/6NjikZ3DzdLHZdqBx8G1oG/87208c48dc03f7b455a92a1085b1de34/Blog_Inline_03.png)



## What Happened This Week?

__Takeaways:__ A lot happened over the past 10 days! Three banks failed within a week of each other, pushing the Federal Reserve to guarantee customer deposits across the United States. The resulting impact of the bank failures saw a major stablecoin briefly lose its peg, while a boost in crypto prices followed early in the week. The confluence of events has continued to put a spotlight on the Fed, as the potential for large interest rate hikes loses steam.

__U.S. banking failures spur government action:__ This past week was quite eventful, with a number of significant developments in the crypto and wider financial markets leading to surging volumes and heightened volatility. Igniting the fuse, three U.S. banks collapsed all within a week of each other. 

As discussed last week, the first to go was crypto-focused bank, Silvergate, which announced it was shutting its doors on Wednesday, March 8, 2023.1 Then Silicon Valley Bank (SVB) rocked the markets on Friday, March 10, 2023, being the largest bank to fail since the 2008 financial crisis.2 Two days later, another crypto-focused bank, Signature, was closed by state regulators.3 

To contain the simmering crisis, the Federal Reserve Board of Governors released a statement on Sunday announcing the availability of “additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors,” creating the Bank Term Funding Program (BTFP).4 On Monday morning, before the markets opened, President Joe Biden reiterated that the government would guarantee the safety of customer deposits across the banking industry.5

On the crypto banking front, the collapse of Silvergate, SVB, and Signature, which offered the ability to complete fiat transfers 24/7, may limit crypto participants’ banking options. This may reduce liquidity, particularly on weekends, increase settlement times, and make arbitrage between exchanges more difficult.

__USD Coin (USDC) briefly loses its peg:__ The second largest stablecoin, USDC, saw its price depeg from its 1-to-1 dollar backing over the weekend, trading as low as ~$0.88.6 Circle, the group behind USDC, had significant cash exposure to SVB, and Coinbase paused conversions between USDC and U.S. dollars over the weekend creating a brief panic across the stablecoin market. Multiple other stablecoins pegged to the U.S. dollar also saw their prices depeg, and bitcoin (BTC) prices dropped as low as $19.5k along with double-digit declines across altcoin prices. By Monday, USDC had recovered its peg as U.S regulators stepped in over the weekend to guarantee deposits. 

__Crypto prices rise following weekend turmoil:__ Increased market liquidity from the BTFP, an expected reduction in interest rate hikes, and a lower than expected terminal interest rate all helped to push crypto prices higher throughout the start of the week. 

Bitcoin (BTC) prices broke above the strong $25k resistance, reaching ~$27k on Friday morning.7 Ether (ETH) prices rallied higher too, touching ~$1,780,8 although it has lagged BTC, trading toward the bottom of long-term range on the ETHBTC pair.9 The outperformance of BTC and to a lesser extent ETH would suggest a flight to quality and is further evidenced by some weakness across alts with some down for the week and Bitcoin dominance rising to ~46%.10

__Shifting interest rate expectations:__ This week saw a shift in expectations regarding upcoming interest rate changes, as the potential fallout of rapid rate increases becomes more pronounced. 

Although inflation remains a concern, the immediate worry now lies with bank health and potential contagion to the rest of the banking sector. The events of the past week may limit the Fed’s ability to implement further rate hikes to dampen inflation. At its peak last week, market expectations for a 50bps rate hike at the upcoming Fed policy meeting on March 22 reached 80%. The consensus has tempered a bit, with the market expecting that the Fed will announce a 25bps rate raise.11

-From the Gemini Trading Desk

![Blog Inline 03](//images.ctfassets.net/jg6lo9a2ukvr/6NjikZ3DzdLHZdqBx8G1oG/87208c48dc03f7b455a92a1085b1de34/Blog_Inline_03.png)



## Crypto Topic of the Week — Stablecoins

Stablecoins have been in the news lately, as questions were raised about the funds backing certain large stablecoins following the collapse of SVB. While those concerns have now largely subsided, we thought it fitting to focus on stablecoins for this week’s crypto topic. 

__What are stablecoins?__ Whether the purpose is to retain a peg to the price of a fiat currency, a commodity, or some other asset, stablecoins are meant to maintain a predictable value. 

In most cases, the value of a stablecoin is tied directly to a fiat currency or tangible commodity, like [Gemini dollar (GUSD)](https://www.gemini.com/dollar), which is pegged 1:1 to the U.S. dollar. However, stablecoins can also achieve price-stability through collateralization against other cryptocurrencies or algorithmic token supply management. Since stablecoins are not meant to fluctuate significantly in price, they are designed to be used as a transfer of value rather than as an investment.

__What are the different types of stablecoins?__ There are four main ways stablecoin issuers ensure a steady or predictable value. Stablecoin collateral structures can be [fiat-backed](https://www.gemini.com/cryptopedia/glossary#fiat-backed-stablecoin), [crypto-backed](https://www.gemini.com/cryptopedia/glossary#crypto-backed-stablecoin), [commodity-backed](https://www.gemini.com/cryptopedia/glossary#commodity-backed-stablecoin), or [algorithmic](https://www.gemini.com/cryptopedia/glossary#algorithmic-stablecoin).

Fiat-backed stablecoins, the most common type, are pegged to a fiat currency and are usually backed 1:1 by fiat and cash equivalents. In these cases, one stablecoin can always be redeemed for fiat, like U.S. dollars in the case of GUSD.

Crypto-backed stablecoins are typically overcollateralized by an underlying cryptocurrency asset to account for crypto price volatility. To create, or mint, a crypto-backed stablecoin, a user typically locks their cryptocurrency in a smart contract to receive the stablecoin, and pays the stablecoins back into the same smart contract to withdraw their original collateral.

Commodity-backed stablecoins are pegged to the value of underlying commodity assets like gold, silver, or real estate. Holders of these stablecoins have a claim to their underlying assets. The most popular commodity-backed stablecoins are backed by gold.

Algorithmic stablecoins seek to maintain their peg a bit differently. Rather than being backed 1:1 by a specific asset, their price stability is maintained by the use of algorithms and smart contracts that manage the supply of tokens in circulation. The stablecoin’s algorithm may automatically expand or contract the number of tokens in circulation in order to meet a specific price target.

You can dive deeper into stablecoins with these articles: [What Are Stablecoins?](https://www.gemini.com/cryptopedia/what-are-stablecoins-how-do-they-work) | [Understanding Stablecoins: They’re Not All Created Equal](https://www.gemini.com/blog/understanding-stablecoins-theyre-not-all-created-equal) | [The Global Stablecoin Ecosystem](https://www.gemini.com/cryptopedia/what-are-stablecoins-list-global-ecosystem).

See you next week. Onward and Upward!

Team Gemini

**This material is for informational purposes only and is not (i) an offer, or solicitation of an offer, to invest in, or to buy or sell, any interests or shares, or to participate in any investment or trading strategy, (ii) intended to provide accounting, legal, or tax advice, or investment recommendations, or (iii) an official statement of Gemini. Gemini, its affiliates and its employees do not make any representation or warranty, expressed or implied, as to accuracy or completeness of the information or any other information transmitted or made available. Buying, selling, and trading cryptocurrency involves risks, including the risk of losing all of the invested amount. Recipients should consult their advisors before making any investment decision. Any use, review, retransmission, distribution, or reproduction of these materials, in whole or in part, is strictly prohibited in any form without the express written approval of Gemini.*

---

1https://www.cnbc.com/2023/03/08/silvergate-shutting-down-operations-and-liquidating-bank.html 

 2https://www.fdic.gov/news/press-releases/2023/pr23016.html 

 3https://www.cnbc.com/2023/03/12/regulators-close-new-yorks-signature-bank-citing-systemic-risk.html 

 4https://www.cnbc.com/2023/03/12/regulators-unveil-plan-to-stem-damage-from-svb-collapse.html

 5https://www.whitehouse.gov/briefing-room/speeches-remarks/2023/03/13/remarks-by-president-biden-on-maintaining-a-resilient-banking-system-and-protecting-our-historic-economic-recovery/ 

 6https://www.circle.com/blog/an-update-on-usdc-and-silicon-valley-bank

 7https://www.gemini.com/prices/bitcoin 

 8https://www.gemini.com/prices/ether 

 9https://www.tradingview.com/symbols/ETHBTC/ 

 10https://www.tradingview.com/symbols/BTC.D/ 

 11https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html

Crypto prices rose this week, following a hectic weekend culminating in the failure of three banks and strong government action to protect deposits.

Weekly Market Update | March 17, 2023 | Crypto Prices, Market News, and Crypto Education

Weekly Market Update - Friday, March 17, 2023

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Launched in October 2018, USD Coin (USDC) is a fiat-collateralized stablecoin built by the Centre consortium, a partnership between Circle and Coinbase created to develop price-stable crypto assets and network protocols. It offers the advantages of transacting with blockchain-based assets while mitigating price risk.

## Token

USDC is an ERC-20 utility token compliant with the Ethereum network that is pegged 1:1 to the US dollar. It serves as an onramp to DeFi and as a means of digital payment. USDC can be transacted over the Ethereum blockchain in the same manner as Ether or any other ERC-20 asset. 

If a user wishes to redeem USDC they can send tokens to an address controlled by Centre members who will destroy the tokens and transfer fiat currency to the user's bank account. USDC’s existence on public blockchains allows traders and exchanges to use USDC as an alternative to fiat currencies. Gemini does not support or guarantee USDC’s 1:1 peg to the US dollar.

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