Illustration: Gabriella Turrisi/Axios
With Digital Currency Group’s The Genesis crypto lending unit is said to be on point Following a bankruptcy filing, a group of people reassessed the risk associated with a stablecoin in the mix: the Gemini dollar pegged to the US dollar.
driving the news: Members of MakerDAO, a decentralized finance protocol that owns approximately 85% of the Gemini Dollar (GUSD) market cap, recently voted in by the the narrowest of margins to keep their possessions.
Context: GUSD is issued by Gemini, the crypto exchange owned by Cameron and Tyler Winklevoss.
- Gemini currently owes around $900 million to clients in its Earn program, a problem for which it blames its partner in that program: Genesis.
Zoom out: If Genesis ends up collapsing and taking Gemini with it, the question is whether GUSD holders would be protected.
- Chapter 11 cases involving crypto platforms in the US have not yet tested what protections are afforded to US dollar-backed stablecoins issued by the exchange.
What they are saying: Tyler Winklevoss on Monday tried to calm MakerDAO delegates said that “issues related to Earn do not affect any other Gemini products,” in a letter posted on their forum.
- Winklevoss claims that GUSD reserves are held in accounts at US FDIC-insured banks, including money market funds and US Treasury notes.
- He says the cash portion of GUSD’s reserves may be kept at Signature Bank, which recently said it would shed some $10 billion in depositsor Silvergate Bank, which recently said they were trim secondary customers or State Street.
- That cash “may be eligible for transfer insurance” from the FDIC for Gemini customers, Winklevoss said.
Yes, but: It’s a big “IF” if a GUSD holder could qualify for pass-through insurance, according to Steven Kelly, principal research associate at Yale’s Financial Stability Program.
- It would be left to the discretion of the FDIC to apply the “passthrough”, and so far they have shown no interest, partly due to the wave of crypto companies. misleading advertising coveragehe says.
The panorama: GUSD is not widely used other than on the Gemini and MakerDAO platform, making it highly illiquid relative to other dollar-pegged stablecoins.
- “The worst case scenario would mean problems on Gemini causing delayed refunds,” according to Riyad Carey of Kaiko Research.
The bottom line: Should the lack of liquidity cause fear, the GUSD could temporarily deviate from its parity. MakerDAO appears to be taking that risk for the 1.25% return.