Gemini Interview: Why Put US Dollars on the Blockchain?
Last month, the New York-based cryptocurrency exchange Gemini announced the launch of the Gemini Dollar, which Gemini Co-Founder and President Cameron Winklevoss described as "the world's first regulated stablecoin." We asked Brandon Arvanaghi, the core developer of the Gemini Dollar, to answer a few questions.
Can you explain, in language that a non-crypto person could understand, what your stablecoin is and how it works?
A stablecoin is a digital asset that is tied 1-to-1 to the U.S. dollar. Meaning, if you have a Gemini dollar in your Ethereum wallet, you can always redeem it for 1 U.S. dollar on Gemini exchange, and transfer that dollar directly to your bank account.
The Gemini dollar is implemented as an ERC20 token in Ethereum. This means any Ethereum wallet can handle it, transfer it to other Ethereum addresses, etc.
Why does the US dollar even need blockchain technology? Why can’t we just use the US dollar?
Very good question. Historically, institutions have been less willing to put capital into the Ethereum ecosystem, like contributing to dApps, token sales, etc., because ETH’s price volatility meant higher exposure the longer they had their assets in ETH. An honest-to-goodness US dollar on the Ethereum blockchain allows them to confidently store their dollars in the Ethereum ecosystem, without a constant worry of when to sell, and allows them to be ready at a moment’s notice to contribute to Ethereum-based projects.
Second, decentralized application developers and token sales have had a difficult time raising money in ETH. The price volatility meant they could never confidently know how much money they had raised, especially when they needed fiat for costs that can’t currently be covered by Ether. dApp developers and token sales can raise money in Gemini dollars now, and confidently redeem them for fiat on Gemini.com.
What are the main differences between your stablecoin and Tether?
A major difference is that we are regulated by the New York Department of Financial Services (NYDFS), and are one of the first ever stablecoins that fits that description. That means, in the eyes of the government, a Gemini dollar is as much a US dollar as a physical one dollar bill you can hold in your hand.
Another key difference is our transparency. State Street Bank and Trust Company is one of the oldest, most respected and largest banks in the world, and they agreed to hold the dollars backing the Gemini dollar. BPM, a registered, third-party accounting firm, verifies the funds in that State Street account every month, and we publish that report every month. Finally, we received a 6-week audit of our smart contracts by one of the most respected smart contract auditing firms in Trail of Bits. Having these reputable institutions verify everything about the Gemini dollars -- from the contracts to the dollars in the bank account -- is a major differentiator.
All over the world, governments are struggling to figure out how to regulate crypto. Approaches range from strict to laissez-faire. How would you characterize US crypto regulations, and Gemini’s own regulatory experience in introducing the stablecoin?
We’ve been very pleased with the US government and SEC’s openness to cryptocurrencies and willingness to understand their applications. As a parallel, the U.S. financial markets are some of the healthiest and most vibrant markets in the world because they have regulatory oversight and rules in place. To that effect, we believe thoughtful regulation will actually make cryptocurrencies more viable moving forward. That’s why we emphasize the long game so much at Gemini, and getting approval from regulatory bodies like the New York Department of Financial Services for our major initiatives.
From the dev side, can you talk a little bit about the challenges of building the stablecoin?
We wanted to make the implementation completely transparent, which required several high-level design meetings. In our implementation, any high-impact operation (like printing large amounts of tokens or upgrading the contracts) is controlled by a smart contract. Within that smart contract, you can see that we require multiple, distinct signatures to make any serious change to the Gemini dollar contracts. Furthermore, you can see that any proposed change to the contracts has to sit in a "time lock" state, where the general public can be aware of it before we can sign it.
What we've seen some competitors do is have their high-impact operations controlled by a single Ethereum address. That means there's no publicly-broadcasted request, there's no time lock, and there's no way to know for sure if they are using multi-signature enforcement unless it's being done behind the scenes. The competitor contracts can change drastically at a moment's notice, whereas with our contracts, you know for a fact that they cannot.
These were conscious design decisions we implemented, and the result of countless hours of meetings and security audits.
The founding idea of Bitcoin was that it was a currency that was independent of governments and banks. Does the stablecoin contradict this underlying principle? Why or why not?
Another great question. There are two separate conversations taking place here. The first is the conversation about the decentralized, trustless, consensus protocols like in Bitcoin and Ethereum. That’s why we’re all excited about cryptocurrencies and why we’re here. The second is this new concept called the Gemini dollar, the most honest-to-goodness representation of a US dollar on Ethereum. Both of these conversations are great for the world of cryptocurrencies.
The Gemini dollar allows new money to come in from institutions that otherwise may not have come into Ethereum. That money will go towards funding decentralized applications on Ethereum. Further, dApps and token-based projects can raise money in Gemini dollars, and not worry about price fluctuations. In other words, the Gemini dollar will create a more vibrant decentralized application ecosystem, by making Ethereum more accessible to everyone. It aligns perfectly with our goal of creating a bridge to the future of money, which we see as these decentralized currencies. This allows the world to become a more 24/7, global marketplace.
What are the benefits/costs of rolling out the stablecoin in the middle of a bear market?
When there’s more of a “bull” market, we see more people creating dApps, and trading assets on exchanges. This naturally would mean even quicker adoption of the Gemini dollar. Regardless, we always emphasize the long game at Gemini. We have been working on the Gemini dollar for over a year, and the market conditions didn’t affect our rollout strategy. International exchanges continue to come on board as we see global adoption.
Tyler Winklevoss, our CEO, actually talked about the opportunities of a bear market in a recent interview. He said “The future of cryptocurrency will be built during these times more than any other because only the people who are here for the right reasons remain, and ultimately they are the ones who build the future.” I agree with that assessment.
On an unrelated note, Gemini only has three cryptocurencies, why is one of them ZCash?
Our founders, Cameron and Tyler Winklevoss, set out to list the cryptocurrencies they had the most confidence would be staples of this space for years and years to come. That’s why we started out with only Bitcoin and Ethereum, both of which were correct guesses at the time. Gemini became the first licensed exchange to list Zcash, which seemed like a great opportunity, as our founders considered it a promising coin. As far as only listing three cryptocurrencies at the moment, we continue to keep an eye on additional opportunities and assets to add to the platform.