Business 6 February 2019Erik Gibbs
Gemini exchange pouts, shuts down accounts after withdrawals
The Winklevoss brothers may have thin skin. According to several reports, two over-the-counter (OTC) trading desks saw their accounts on the Gemini exchange, founded by the brothers, abruptly shut down after both exchanges informed the company that they would be redeeming their holdings of Gemini’s stablecoin, the GUSD. They assert that the decision to close the accounts was a retaliatory move for the redemptions, but Gemini denies the allegations.
According to one of the OTC desks, only identified as a trader based in Latin America, his account was closed after he notified Gemini that he would redeem several million dollars of GUSD. Gemini must not have taken kindly to the notice, as it sent a response to the individual in which it stated that a review “determined [the] account must be closed. It did not offer a reason for the closure.”
In a separate incident, an unidentified OTC desk in the U.S. successfully redeemed a few million dollars’ worth of GUSD and then suddenly found his account closed. As was the case with the Latin American trader, Gemini refused to offer a reason why it closed the account.
The general consensus is that the closures are a ploy to keep GUSD’s volume rates and adoption high. To be fair to Gemini, OTC desks and market leaders were able to purchase GUSD at a 1% discount when the stablecoin was launched last September on the condition that those entities would not try to redeem the assets immediately.
The closures have created ripples in the GUSD pool, with other OTC desks now afraid to redeem their assets. Regardless of the conditions stipulated by Gemini when GUSD was purchased, the threat of an account closure – with no explanation as to why – can be likened to a type of coercion or account hostage-taking that shouldn’t sit well with investors.
Gemini responded to an inquiry by CoinDesk over the matter, stating, “Gemini is a New York trust company. As a result, some potential customers will be unable or unwilling to pass our robust compliance program. This is a feature, not a bug, and what makes Gemini different. We understand this may frustrate some, but this is necessary to build trust in the future of money.”
If the OTC desks saw their accounts closed due to lack of compliance, that is a completely different matter. However, given that they were shut down in conjunction with the desire to redeem holdings is a little more than suspect.
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