Two crypto companies, Gemini Trust and Paxos, got a green light from a New York state regulator to launch their own stablecoins pegged 1:1 to the U.S. dollar.
New York Department of Financial Services (NYDFS) gave an okay to Gemini Trust, the crypto exchange founded by the Winklevoss twins, to launch Gemini Dollar (GUSD). It also gave a nod to Paxos Trust, the company behind the over-the-counter (OTC) exchange itBit, to issue Paxos Standard (PAX). Both coins launched on September 10, 2018.
Since Tether (USDT), the most recognized of the stablecoins, launched in 2014, many other stablecoins have followed, all pegged to the value of some underlying asset, like another currency. In general, stablecoins provide a digital alternative to cash and serve as a hedge against volatility.
Some critics claim, however, that stablecoins are being used for money laundering and, in the case of Tether, to manipulate the price of bitcoin. This is why the NYDFS says it has gotten stringent assurances from Gemini and Paxos.
According to the NYDFS’s press release, Gemini and Paxos tokens are subject to the Bank Secrecy Act, anti-money laundering and Office of Foreign Assets Control controls “to prevent the Gemini Dollar or Paxos Standard tokens from being used in connection with money laundering or terrorist financing.”
“These approvals demonstrate that companies can create change and strong standards of compliance within a strong state regulatory framework that safeguards regulated entities and protects consumers,” NYDFS superintendent Maria Vullo said in a statement.
Unlike Tether, which runs on the Omni Layer on top of the Bitcoin blockchain, both Gemini Dollar and Paxos Standard are ERC-20 coins that run on the Ethereum blockchain.
According to Gemini’s blog post, traders who have a Gemini account can convert U.S. dollars 1:1 into Gemini Dollars and withdraw them to a specified Ethereum address. Conversely, if they move Gemini Dollars back into their Gemini account, they can convert them back into fiat.
Gemini says U.S. dollars backing its stablecoin will be kept in a U.S.-based State Street Bank and insured through the Federal Deposit Insurance Corporation’s “pass-through” deposit insurance program, subject to applicable limitations. Independent auditor BPM Accounting and Consulting will review the company’s bank holdings on a monthly basis. Also, the smart contract controlling the Gemini Dollar has been audited by Trail of Bits.
When Bitcoin Magazine asked if Gemini has plans to integrate the new stablecoin into other services or platforms, such as wallets, point-of-sale platforms or other exchanges, its response was non-committal:
“As the Gemini dollar is an ERC20 token on the open source Ethereum network, it can be sent to any Ethereum address. We look forward to its adoption by third parties, including other exchanges and wallet providers.”
In Paxos’ case, customers can purchase and redeem tokens directly through Paxos.com. According to the company’s press release, investors using the itBit exchange or OTC desk will be able to redeem their crypto holdings for Paxos Standard “instantaneously.” itBit will also trade Paxos Standard tokens OTC.
Paxos says it works with a third-party, independent public accounting firm to monthly review and attest that Paxos Standard tokens are fully backed by actual dollars. Additionally, the Paxos Standard smart contract has been audited by blockchain auditor (Nomic Labs) to ensure that the code is solid and operates the way it is supposed to.
According to the NYDFT, both Paxos and Gemini will be subject to charter revocation if they fail to comply with any of the provisions of the agency’s approval.