Attention turns to Gemini USD amid raised awareness after FTX’s collapse on FTT

There is growing awareness and concern that the tokens issued by centralized exchanges are their weakest link. The collapse of FTX and Alameda following the dumping of FTT has shown precisely that.

Following the FTX downfall, attention turned to Binance, with strong pressure on BNB and BUSD, but Binance seemingly passed its stress test.

Now that the crypto lending service provided by Genesis Global, a subsidiary of Digital Currency Group (DCG), has put Winklevoss-owned centralized crypto exchange Gemini in a difficult spot, attention has now turned to Gemini USD.

Kaiko, a provider of real-time and historical cryptocurrency trade data, order books, and aggregated prices through a cryptocurrency API, regularly provides insights into the digital asset ecosystem through its research department, Kaiko Research.

Its latest publication, “A Look at Gemini USD“, offers an in-depth analysis of Gemini and GUSD, a USD stablecoin issued by Gemini that is 1:1 backed with cash deposits at banks (including Silvergate), money-market funds, and U.S. Treasury bills.

The auditing firm BPM conducts monthly attestations regarding GUSD’s backing. Additionally, Gemini is regulated by the notoriously stringent New York Department of Financial Services (NYDFS) and GUSD is thus subject to specific NYDFS guidance on stablecoins that governs backing, redeemability, reserves, and attestations.

Despite these safeguards, GUSD was heavily shorted as Gemini halted withdrawals, according to Kaiko, which provided data of GUSD supply APR on Aave nearly hitting 90% as users borrowed GUSD – “clearly the market interpreted Gemini’s troubles as a potential problem for GUSD, too”, said Riyad Carey at Kaiko Research.

Gemini’s GUSD doesn’t appear to pose any serious risk to Gemini’s solvency

The research firm explained that centralized exchanges have financial incentives to issue and maintain banking for their stablecoin, but contrary to similar cases, Gemini’s GUSD is not particularly used on CEXs nor DEXs.

“Given that GUSD isn’t really used on centralized or decentralized exchanges, what is it used for? At the moment, its primary use case is in the MakerDAO Peg Stability Module (PSM), a reserve that helps the protocol maintain DAI’s USD peg. In his proposal to MakerDAO, Tyler Winkelvoss, cofounder of Gemini, stated that Gemini’s goal was to increase GUSD’s usage on chain. Gemini agreed to contribute “to MakerDAO a fixed rate of 1.25% (annualized rate, calculated and paid on a monthly basis) for any GUSD present in the PSM, as long as the average monthly balance on the last day of the month is over $100m GUSD.”