The history of stablecoins in cryptocurrency has been a volatile one. It is a story not just of stability but also of skepticism, scrutiny and speculation. There have been enthusiasts who swear by it and skeptics who question their very existence.
A stablecoin is a coin that is pegged to a certain asset. The most common example is the US dollar that has USD Tether (USDT) and True USD as stablecoins. Stablecoins aim to bring on the benefits of decentralization while providing some of the stability of the real world. But many stablecoins have left a lot to be desired.
The Tether Story … and Bitfinex
USDT is probably the stablecoin that is most well known and also the one that has the greatest amount of scrutiny. USDT is used on the majority of crypto-to-crypto exchanges to enable traders to speculate on the value of varying cryptocurrencies in relation to their USD price.
However, the story is not as straightforward as it may seem. The genesis of USDT was grounded in controversy. The Tether tokens are issued by Tether Limited, and the claim is that every USDT is backed by an actual US dollar. This claim has not been verified.
Tether Limited is owned and operated by the same key people as those who operate the exchange Bitfinex. The CEO of both companies is Jan Ludovicus van der Velde. This may not seem an issue, but it was vehemently denied that the two operations were run by the same people up until Nov. 2017. At that time, the Paradise Papers were released, which confirmed that the two organizations were run by the same people.
While initially, the supply of USDT grew slowly, the rate of increase grew rapidly when Bitfinex got hacked to the amount of $75 million, and Wells Fargo terminated services to both Tether and Bitfinex.
There has been strong speculation that Bitfinex has been printing USDT with no real backing to pay off its debts and lost funds. To add further controversy, Tether Limited cut off its relationship with its auditor, Friedman LLP, in Jan. 2018. The auditor was hired in May 2017 to put together a comprehensive balance sheet.
The current USDT balance stands at 2.8 billion.
This is not the story of every stablecoin. There are myriad others. Some are based on technological innovations and not just the claim of fiat currency backing the token. One example of this would be MakerDAO.
Drum Roll for Gemini Coin…
But there is a new stablecoin that is about to enter the game. This one looks to have everything that Tether lacks and will be clearly audited right from the start.
This week, the New York Department of Financial Services approved Gemini Trust Company to issue its first cryptocurrency. Gemini Trust Company is owned by Tyler and Cameron Winklevoss, who previously put forward proposals for a Bitcoin ETF, which was rejected by the Securities and Exchange Commission.
The cryptocurrency will be called the Gemini Dollar and will be issued on the Ethereum blockchain. It will be backed by actual US dollars, same as Tether. But the key difference lies in the matter that the US dollars backing the Gemini Dollar will be stored in an FDIC-backed account at State Street. There will be audits of the account both before and after the launch.
What is important when it comes to a stablecoin? Is it the technology? Is it the transparency? Is it the convenience?
When the Gemini coin is launched, we will find out what the cryptocurrency community really values in a stablecoin.