Whose “Trust Problem” Does the Winklevii’s New Stablecoin Solve?
09.11.2018

Yesterday, Cameron and Tyler Winklevoss (aka, the Winklevii) announced their bitcoin exchange’s new coin, the Gemini dollar. Backed with U.S. dollars held by the Boston-based bank State Street, Gemini dollars are based on the Ethereum network and, like other “stablecoins,” their value is designed not to fluctuate (they’re 1:1 with USD). The aim of the new coin, writes Cameron Winklevoss in a Medium post, is to give “fiat currency the same desirable technological qualities of cryptocurrencies” while retaining the trust users have in the former.

Besides State Street, that trust will come from the New York State Department of Financial Services. The agency approved the Gemini dollar (which has yet to get an official, ready-to-trade launch date) and will serve as a regulator for the coin. The coin will also have to abide by New York banking laws, reported Business Insider.

In addition to fostering trust in cryptocurrencies, the other main aim of the Gemini dollar is to promote the use of coins that operate on blockchain. Right now, the main reason people put money in cryptocurrencies is to make more money. “When something is a store of value, you generally don’t want to spend it,” Tyler Winklevoss told Business Insider. With stablecoins, there’s no money-making incentive. People who buy them will do so presumably for the unique advantages transacting with cryptocurrencies provides, like seamlessly (and fee-lessly) sending money overseas.

The Winklevii believe a trusted stablecoin will increase adoption of cryptocurrency, especially among those generally wary of a space often associated with shady dealings on the dark web. The Gemini dollar will tackle what Tyler calls “the trust problem.”

However, there’s a crucial difference between what the general masses perceive as “the trust problem” with cryptocurrencies and what people gung-ho about blockchain technology consider trust issues. For the crypto-cautious, an established bank like State Street, along with the promise of regulatory oversight, will bolster confidence in a new coin. But for Satoshi followers and the like, trust problems refer to having to rely on any third party at all to complete monetary transactions. Why trust your bank or PayPal when blockchain technology lets you withdraw or send money to a friend without a centralized intermediary? Blockchain diehards find the current internet riddled with third parties, for doing anything from messaging friends (Facebook) to looking up information (Google). For them, having to trust those third parties is the trust problem.

By bringing (big bank-backed) “trust” into the cryptocurrency equation, the Winklevii seem to be missing the point of cryptocurrencies. As one Twitter user put it:

Meanwhile, another stablecoin got approval from the NYSDFS yesterday. Paxos, a company that combines its regulated trust status with blockchain technology to settle trades, now offers a stablecoin called the Paxos Standard. As Paxos CEO Chad Cascarilla told BREAKER, “Paxos Standard (PAX) is the first token issued directly by a regulated Trust company, and the first token specifically approved for issuance by a regulatory body.” The emphasis on being “first” may be an attempt to engender a certain level of trust. People can buy coins straight from the Paxos website, and, like Gemini dollars, the coins are based on the Ethereum network. Instead of one bank holding the USD that backs Paxos coins, however, multiple FDIC-insured US banks will do the job, Paxos says. No specific banks have been named, perhaps giving a slight edge to the State Street-supported Winklevii when it comes to “trustworthiness.”

Another big name the Winklevii have in their corner is Charlie Shrem. The bitcoin millionaire and current CryptoIQ founder had a bit of a falling out with the Winklevii in 2014, when the brothers expressed “deep concerns” about Shrem’s money laundering arrest after they’d invested $1.5 million in BitInstant, his business at the time. In a statement responding to Shrem’s arrest, the Winkelvii attempted to distance themselves from Shrem and said they “look(ed) forward to clearer regulation being implemented on the purchase and sale of bitcoins.”

Now, Shrem is endorsing the Gemini dollar. “Cameron and Tyler have basically prided themselves on going above and beyond to build that bridge between the crypto and non-crypto world since I began working with them back in 2012,” Shrem said in an opinion piece on his company website, though it’s unclear how much his review might contribute to the public’s trust.

Other blockchain proponents, meanwhile, appear less than thrilled about the idea of such a bridge. But most can agree on one thing—it’s “better than Tether.”

Additional reporting by Brian Patrick Eha.