GUSD is a cash-collateralized stablecoin, meaning that the Gemini Trust Company—which runs the Gemini exchange—backs each GUSD on a 1:1 ratio in their reserves so that users can always redeem their GUSD for an equivalent number of US dollars (1 GUSD = $1.00).
Stablecoins are an integral part of the infrastructure of both centralized exchanges (CEXes) and decentralized finance (DeFi). Built according to Ethereum’s ERC-20 token standard, GUSD is a blockchain-based asset that straddles the stability of cash and the convenience of a blockchain-based cryptocurrency.
Like other stablecoins, GUSD was designed to help anyone access cash without using traditional financial accounts or payments infrastructure. This comes with various benefits, including faster settlement times for trades, accessibility of funds 24/7, transparency of GUSD transactions and for use on-chain in various DeFi protocols.
The Gemini dollar is one of many cash-collateralized US dollar stablecoins that includes Tether (USDT) and USD Coin (USDC).
How is the GUSD token used?
GUSD can be used on centralized exchanges like Bitstamp and either hold it as a savings tool or use it to execute trades more efficiently, or in decentralized applications (dapps) like Aave’s crypto lending/borrowing platform and decentralized exchanges (DEXes) like Uniswap.
To obtain GUSD from Gemini, users must either a) transfer US dollars to the platform to purchase the stablecoin, or b) trade other cryptocurrencies for GUSD. However, GUSD can be purchased/traded on other centralized exchanges like Bitstamp, and many DEXes host GUSD trading pairs as well.
Gemini is responsible for the minting of all GUSD tokens, meaning the company ultimately controls its supply. It is also responsible for burning (destroying) GUSD when users want to redeem their stablecoins for US Dollars, which can only be performed directly on the Gemini platform.
How does Gemini guarantee GUSD?
In 2015, Gemini secured a New York state charter, becoming one of the first fully regulated exchanges in the United States. In September 2018, Gemini received approval from the New York Department of Financial Services (NYDFS) to issue GUSD.
Smart contract security
Gemini uses smart contracts on the Ethereum blockchain to issue and manage its GUSD stablecoin. In an effort to improve security and efficiency, it has separated its Gemini dollar protocol into three distinct (but connected) layers.
The Proxy layer contains smart contracts that create and mediate the transfer of GUSD and provides Gemini with the ability to stop these activities in the event of security or legal issues. This functionality highlights the centralization of GUSD, which is standard for similar stablecoins but has drawn criticism in the crypto community for its lack of decentralization.
The Implement layer contains smart contract data and can only operate when instructed by the Proxy layer. The Store layer includes user-level information such as balances and history of transactions—also called the ledger—and communicates with the Ethereum blockchain directly.
Collateral reserves
Following the failures of several crypto companies (Mt. Gox in 2014, QuadrigaCX in 2019, and FTX in 2022), many centralized crypto-based companies needed to prove that they held the assets necessary to back their efforts.
Proof of Reserves provided a way for cryptocurrency exchanges to publicly account for their digital assets and became a necessary operating procedure. Gemini publishes its Proof of Reserves on its Trust Center. There, the public can confirm the amount of GUSD is in circulation, in addition to the crypto and fiat on Gemini’s platform.
There are also monthly reports from an independent auditing company, BPM, which accounts for both total issued GUSD and the funds backing them. For instance, the April 2023 report noted 486,889,530.68 GUSD in circulation, generated from an equal value of US dollar assets spread among: bank deposits at US regulated financial institutions (45%), money market funds (5%), and US treasury bills with maturities of 3 months or less (50%).
GUSD essentials
- The Gemini dollar (GUSD) is a cash-collateralized stablecoin—pegged to a $1 value—issued by the company behind the Gemini exchange.
- GUSD is a digital asset on the Ethereum blockchain, secured by smart contracts controlled by Gemini.
- Gemini received approval to issue GUSD from a New York state regulator in 2018, and it assures the reserves backing the GUSD it issues through an independent auditor.