The Gemini cryptocurrency exchange announced that it plans on establishing a stablecoin built on the Ethereum blockchain and backed by the U.S. dollar. According to a press release, the Gemini dollar will be offered to give liquidity to those who want to send and receive U.S. fiat over the Ethereum network and will be “strictly pegged” to the dollar. The exchange further stated that all U.S. dollar deposits will be held by the Gemini Trust Company and will correspond to the number of digital coins in circulation.
The stablecoin has already been given the green light by at least one regulator. The New York Department of Financial Services (NYDFS) reviewed the stablecoin proposal, and gave it its approval.
Gemini will maintain the fiat backing the stablecoin in the State Street Bank. It said that it will also insure deposits through the Federal Deposit Insurance Corporation, the same entity that insures traditional bank deposits, using the its “pass-through” insurance program.
All holdings will be reviewed by BPM Accounting and Consulting, an independent auditing firm, each month. The results of those audits are expected to be made public on a routine bases.
According to Tyler Winklevoss, co-founder of Gemini, “The Gemini dollar is part of our mission to build the future of money … It is the missing link between the traditional banking system and the crypto economy.”
Users registered with Gemini will have the ability to exchange U.S. dollars for Gemini dollars and then deposit them into an Ethereum wallet. Conversely, customers can convert Gemini dollars into fiat by making deposits into their Gemini accounts.
Gemini isn’t the only company to get involved with stablecoins. The most notable has been Tether, which was launched as Realcoin in 2014. Most recently, blockchain startup Paxos announced a U.S. dollar-backed stablecoin at the same time Gemini launched its own version. The Paxos Standard has also been approved by the NYDFS, which will regulate it the same way it will the Gemini dollar.
A stablecoin is defined as any digital currency that is tied to a stable asset, such as the dollar or gold. They reportedly are backed by the assets on a one-to-one basis and, therefore, will always have a value that is not as susceptible to fluctuation market conditions like what has been experienced by cryptocurrencies this year.