The claims leveled against the Winklevoss twins-owned crypto exchange, relayed under anonymity due to reputational damage concerns, indicate the business practices emerging in the stablecoin market itself, presently estimated to be worth almost $3 billion.
In one instance, a Latin America-based OTC trader had his account closed after informing Gemini that he wanted to redeem GUSD worth several million dollars. In a statement, Gemini told the trader that a review “determined [the] account must be closed” and it was unable “to elaborate on the specifics for this decision.”
However, the actions might show how the measures taken by Gemini to further GUSD adoption had unintended effects in practice. To capture market share, Gemini issued approximately 1% discount on GUSD in 2018 to market makers and OTC desks, who were then asked to agree on restrictions preventing them from redeeming the assets immediately.
Per the Latin American trader, Gemini pitched the firm on a discount deal offering his company the ability to purchase tokens below market value. After the desk acquired GUSD from its network, the trader revealed the Gemini staff warned him that redeeming millions of dollars will harm the stablecoin.
In another instance, an OTC desk based in the US said its Gemini account has been shut upon redeeming several million GUSD. He thinks it was part of the strategy of Gemini to “maximize their status on CoinMarketCap.”
These are widely known issues. An OTC desk with an active Gemini account said he’s hesitant to redeem the stablecoin for worry of jeopardizing his account.
“So many players are unable to redeem, even very, very big OTC desks. Having an account doesn’t guarantee redeemability,” the trader stated.
Crypto traders being frustrated with Gemini’s offering is nothing new. The exchange is unshy about its preference for institutional Wall Street traders. It even launched an expensive ad campaign promoting itself as a “regulated exchange.”
“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,” Gemini stated.
According to Gemini, the firm has redeemed over $133 million in GUSD, more than half the supply created so far, with customers redeeming up to $40 million at a time.
A proprietary trading firm representative who utilizes the Gemini platform to redeem and trade GUSD said the criticism lobbied by OTC traders can be influenced by competition instead of lack of utility.
“They [Gemini] are not loved like other people, so I think that some of that is being transferred onto their product,” he noted.
Still, some active firms in the market claim that the restriction level on Gemini’s accounts surpassed industry norms.
A third OTC desk has revealed that it was denied access to a Gemini account for allegedly providing a competing money-services business, although it thinks it adheres to similar compliance principles as regional competitors trading on Gemini.
In some ways, OTC desks compete with exchange platforms such as Gemini. However, external context proves the notion that there may be little organic GUSD demand among professional traders.
Five unaffiliated OTC desks said there was no GUSD demand among their trading networks. Per OTC traders, it seems that a huge percentage of perceived GUSD trading activity is directed on exchanges they don’t utilize.
“The trading volume is dictated by [Gemini’s] actions and has nothing to do with the market, per se,” an unnamed OTC trader who has worked with GUSD stated.
Based on CoinMarketCap, the exchanges with the greatest GUSD trading volume are FatBTC, Bitrue, Hotbit, and OEX. Both FatBTC and OEX are ranked on the advisory list of the Blockchain Transparency Institute. The nonprofit estimated that more than 98% of the activity of those exchanges comes from automated trades, which usually involves bots instead of real users.
According to BloomX OTC desk founder Luis Buenaventura, there are lesser liquidity concerns related to Paxos’ dollar-pegged asset PAX, indicating that the trouble is not inherent to all heavily regulated stablecoins.