The industry today was greeted with news of not one, but two stable-coin approvals. Operating within the state of New York, both Gemini and Paxos received the greenlight for their respective coins.
By residing in New York, companies such as these two are subject to strict oversight and regulations by the New York Department of Financial Services. To operate, companies must first receive a ‘BitLicence’. Despite this framework being in place for over 3 years, less than 10 companies have been granted this authorization.
The appeal of a regulated stable-coin is simple. Through their use, one receives the benefits that Tether offers, as well as the transparency that regulatory oversight offers.
Going active on September 10th, the newly minted Gemini Coin will function as an ERC-20 token. Upon launch, users of the Gemini platform will immediately be able to transfer in and out of the fund. These tokens will maintain a 1:1 USD ratio.
Speaking on the coin, Cameron Winklevoss stated, “We are excited to bring the Gemini dollar to market and provide a crucial link between the traditional banking system and the new, rapidly growing crypto economy. With the Gemini dollar, we continue to deliver on our mission — to build the future of money — and help transform the global financial system to enable possibilities previously unimaginable.”
Paxos Standard Coin
Following suit, Paxos has also decided to base their stable-coin, PAX, on the ERC-20 standard. PAX will be utilized by the itBIT platform. Here transactions will be settled in PAX, rather than USD. Upon cashing out, all tokens that were created are destroyed, maintaining a 1:1 USD/PAX balance on the books.
Paxos CEO, Chad Cascarilla commented, “Today, we tokenized the dollar… Tomorrow, everyone in the world can participate in an open, frictionless, global economy. This is one step on an important journey toward an inclusive and modern financial system.”
Purpose and Role
With a young and burgeoning industry comes volatility. Most investments at this point are based on speculation, and not current day utility. It is due to this volatility that stable-coins are needed. These pegged coins offer a reprieve from market conditions.
There are many scenarios that can benefit from the attributes of such a coin. For example, imagine you are a weekend trader. You’ve made a couple of good moves this week, and find yourself going on vacations tomorrow. Unable to monitor markets while you are away, how can you protect your hard-earned gains without cashing out and incurring capital gains? You transfer your holdings to a stable-coin. Scenarios like this are commonplace and benefit investors by essentially placing their investments on ‘pause’.
Centralized exchanges also benefit from stable-coins. For exchanges that are not approved FIAT custodians, stable-coins can be used instead. They serve as a proxy, allowing for investors to gain exposure to a greater number of tokens/coins.
These are only two of many different use cases. One thing is obvious – stable coins are a needed offering.
Known simply as ‘Tether’, USDT functions on the OMNI blockchain. Despite being the most commonly used stable-coin, Tether has become quite contentious over the past year. Although Tether claims that they maintain a 1:1 USD/USDT balance in their accounts, many are skeptical.
It has been well documented that Tether split ways with an auditing firm in 2017. This led to a law firm performing a single day audit earlier this year. Although the results were entirely positive, industry hesitations were not alleviated.
It is due to this lack of full transparency that we are now seeing the rise of many pegged / stable-coins. These types of coins clearly have place in the industry, and are both a wanted and needed products.