Winklevoss Twins Receive New York Approval to Launch New Crypto Coin
(Bloomberg) -- Two financial technology companies won New York state approval to issue cryptocurrencies pegged to the U.S. dollar, creating more regulated and transparent competitors to Tether and other so-called stable coins.
Gemini Trust Co., the digital-asset exchange founded by Cameron and Tyler Winklevoss, received approval from the New York Department of Financial Services to launch the Gemini dollar, according to a statement Monday. Paxos Trust Co., a blockchain company that caters to financial institutions, got permission from the same regulator to issue the Paxos Standard, which also launched Monday.
The two new coins will compete with Tether, Dai and other stable coins designed to track the value of the traditional currency they’re linked to. Tether has grown to become one of the biggest cryptocurrencies, but is shrouded in concern it’s not actually backed by dollars as its creators claim. Much of that concern stems from Tether’s refusal to be audited and because it won’t disclose its banks. The company denies any wrongdoing.
Available today, the Gemini dollar will offer more transparency to potential users than other stable coins, Tyler Winklevoss said in an interview. State Street Corp. will hold the U.S. dollars backing the coin, said Kerri Doherty, a spokeswoman for the bank. State Street won’t act as a custodian for any digital assets. The currency and its dollar reserves will also be audited every month by San Francisco-based firm BPM to ensure they match, Winklevoss said.
“We don’t think anyone’s solving for the trust problem,” Winklevoss said in the phone interview. Audits have “been lacking in the market up to this point,” he said.
Institutional customers have expressed worries about the trustworthiness and lack of regulation of the stable coins available to them, he said. “Existing stable coins were not meeting their needs, and we could create a stable coin that did,” he said.
Associating with State Street, a bank with roots stretching back to the 18th century, may help address those institutions’ qualms. Gemini has also linked up with Trail of Bits, which did a security review of the stable coin’s affiliated smart contracts on the ethereum network, according to the digital security company’s chief executive officer, Dan Guido.
Paxos Chief Executive Officer Chad Cascarilla said that the U.S. dollars backing Paxos Standard will be held in several Federal Deposit Insurance Corp.-insured banks based in the U.S., and their stable coin will be reviewed by a “large auditing firm.” He declined to provide names of the banks. The auditor will be Withum.
“The biggest thing this is doing is solving the plumbing issues in the crypto space,” Cascarilla said of the Paxos Standard. “Our business is trust. We’re not just doing this off some very light forms of regulation.”
Stable coins like Tether are meant to serve as digital replacements for conventional currencies. They are often used to pay out users on exchanges that lack banking access and therefore access to fiat currencies.
Questions about Tether and Bitfinex, one of the world’s largest crypto-exchanges that also shares the same management team, have dogged the virtual currency world since last year, when Bitfinex lost banking relationships yet continued to operate. To date, $2.8 billion Tethers have been issued, according to the company’s website. The U.S. Commodity Futures Trading Commission subpoenaed both firms in December, seeking proof that Tether is backed by a reserve of U.S. dollars, as it claims. British Virgin Islands-based Bitfinex and Tether haven’t been accused of wrongdoing.
Gemini is registered with the state of New York as a trust company, meaning it must put the needs of its customers before the needs of the firm, what’s known as fiduciary duty, Winklevoss said. That’s a higher standard than applied to companies that have received BitLicense, the state’s cryptocurrency permit created by the New York Department of Financial Services, he said.
Paxos is also a regulated trust company.
“The DFS makes sure we’re doing what we say we’re doing,” Winklevoss said. “That’s usually how the trust problem is solved.”
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