‘Stablecoins Coming’: NYDFS Approves USD-Pegged Cryptocurrency Tokens by Gemini and Paxos

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by Bhushan Akolkar · 4 min read
‘Stablecoins Coming’: NYDFS Approves USD-Pegged Cryptocurrency Tokens by Gemini and Paxos
Photo: Gemini / Medium

The Gemini Dollar and Paxos Standard stablecoin will be pegged to the U.S. Dollar in 1:1 ration. The tokens are built on Ethereum network using the ERC 20 standards.

Over the last year, the cryptocurrency market has witnessed a gradual rise in the launch of stablecoin projects. Stablecoin is a digital token pegged to a fiat currency with a fixed value at any given time. Crypto investors and exchanges prefer using stablecoin to quickly trade digital assets without going through the hassle of crypto-to-fiat conversions every time.

On Monday, September 10, the New York Department of Financial Services (NYDFS) approved two stablecoin projects from Gemini Trust Company and Paxos Trust Company.

NYDFS is the creator of the BitLicense framework for digital currency exchanges in the country, and also the strictest regulatory body in the United States. The stablecoins launched by both these companies are pegged to the U.S. Dollar.

Controversy Surrounding the Use of Stablecoin

Tether (USDT) is one of the most successful stablecoin projects launched in the crypto market, to date. However, there is a huge controversy surrounding the use of Tether tokens in the crypto market. Tether is currently facing allegations of using its USDT tokens to manipulate the price of Bitcoin along with other charges of money laundering.

The NYDFS regulatory body is said to have taken strict cognizance of this matter and has received assurance from Gemini and Paxos, before approving their stablecoins. The NYDFS said that both the tokens would be subjected to “effective risk-based controls and appropriate BSA/AML and OFAC controls to prevent the Gemini Dollar or Paxos Standard Token from being used in connection with money laundering or terrorist financing.”

NYDFS superintendent, Maria T. Vullo highlighted that a strong regulatory framework is not necessarily a hindrance to the development in the fintech sector. She said:

“As the financial technology marketplace continues to evolve, New York is committed to fostering innovation while ensuring responsible growth. These approvals demonstrate that companies can create change and strong standards of compliance within a strong state regulatory framework that safeguards regulated entities and protects consumers.”

Details of Gemini’s Stablecoin Project

Called as the Gemini Dollar, the stablecoin is pegged to the fiat currency in 1:1 ratio. The Gemini Dollar is built on the Ethereum network using the ERC 20 standards. Gemini proudly calls it “the world’s first regulated stablecoin.” Gemini co-founder Cameron Winklevoss wrote:

“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.”

The Gemini Trust Company will hold the stablecoin tokens against equivalent USD deposits in the U.S.-based State Street Bank. Gemini will also insure the holdings through the Federal Deposit Insurance Corporation (FDIC)’s “pass-through” deposit insurance program.

BPM Accounting and Consulting, an independent auditor, is appointed to monitor Gemini’s banks holding on the monthly basis. All the audited reports shall also be made publicly available, Gemini wrote in its blog post.

Details of the Paxos Standard Stablecoin Token

Just like the Gemini dollar, Paxos unveiled its U.S. dollar-pegged Paxos Standard Stablecoin token after getting regulatory approval from NYDFS. It means that the Paxos Standard token will also be legally regulated stablecoin in the crypto market. The Paxos Standard token is built on the Ethereum network using ERC 20 tokens. It is also pegged to the USD in 1:1 ratio.

The company said that the stablecoin would work as an alternative to cash and help in sourcing liquidity for investor trading. Charles Cascarilla, CEO and co-founder of Paxos, said:

“Paxos Standard gives financial markets the power to transact in a fully USD-collateralized asset with the benefits of blockchain technology and oversight from financial regulators. We believe that Paxos Standard represents a significant advancement in digital assets, leveraging the oversight and stability of the traditional financial system and enabling a frictionless global economy.”

In a word with Forbes, Cascarilla noted that four different U.S.-domiciled banking partners should accept the Paxos Standard tokens. The company also assured of conducting regular audits of its stablecoin by a third-party auditor. 

As both the stablecoins are completely regulated, they can provide a tough competition to Tether (USDT) tokens that is speculated to have caused the market manipulation. 

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Bhushan Akolkar

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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