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From the creation of Gemini, a cryptocurrency exchange, to the release of a bitcoin ETF that was rejected by the SEC, the Winklevoss brothers have been heavily involved in the cryptocurrency industry for a long time. On September 10th, the brothers introduced a regulated stablecoin. Dubbed the ‘Gemini Dollar,’ the stablecoin is built on the Ethereum blockchain using ERC-20 standard, approved by the New York Department of Financial Services. According to the brothers, it would achieve two major goals: make ‘Gemini Dollar’ a stable, fiat-like token while maintaining the speed and cross-border capabilities of cryptocurrencies.
Every Gemini Dollar created will now be backed by the U.S. dollar. Unlike other stablecoins, the Gemini cryptocurrency will be stringently pegged to the US dollar and serve as a liquidity solution for those who want to move money between the ethereum blockchain and the US dollar or vice versa. Additionally, the fact that Gemini’s stablecoin will be strictly pegged to the US dollar and regulated by the NYDFS makes this token utterly different from already existing stablecoins.
To achieve a true “stablecoin” status, Gemini will use State Street Bank to set limits, which would then be executed by the Federal Deposit Insurance Corporation (FDIC). The brothers will also allow an independent auditor BPM Accounting and Consulting, to inspect bank holdings of Gemini and subsequently come out with reports of its discoveries. Allowing a third party to audit its operations would give all parties and the crypto public the assurance that its stablecoin will be pegged 1:1 with the US dollar.
The Need for Stablecoins
A ‘stablecoin’ is a digital currency that is pegged to another stable resource, for example, gold or the U.S. dollar. It’s a global currency, isn’t attached to a national bank, and commands low fluctuations. A major stumbling block to mainstream adoption of cryptocurrencies is the highly volatile prices. Digital currencies are, therefore, not currently ideal for day to day activities. The introduction of stablecoins will eliminate the “instability” features of cryptocurrencies, allow them to be used for day to day transactions like buying coffee, and ultimately encourage mainstream adoption.
The Competition to Create the Ideal Stablecoin
The rise and fall of cryptocurrency prices sparked the creation of stablecoins, with Tether being one of the pioneers in this space. Since its introduction, the cryptocurrency stabilizer has however received some criticisms for not having enough US dollar reserve and for manipulating bitcoin prices. Earlier this year, stablecoin startup Basis got backing from VC giant Andreessen Horowitz. Another stablecoin startup, Reserve, was also backed by Peter Thiel, PayPal’s co-founder.
This shows that amidst the issues that come with some stablecoins, the idea of having a US-dollar backed cryptocurrency is not at all bad. And with the mainstream skeptical of cryptocurrencies because of price fluctuations, using a stablecoin will help create stability and get individual and institutional money into the cryptosphere.