Gemini Earn suspends withdrawals, how does it affect GUSD and MakerDAO?

PANews

2022-11-18 10:54 (UTC+8)

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Rumor has it that MakerDAO was affected by Gemini Earn’s suspension of withdrawals, but this may not be the case.

Gemini Earn has suspended withdrawals. There are rumors that $500 million of MakerDAO’s funds have been frozen in Gemini Earn, but this is not the case. This matter may have less impact on GUSD and its partner MakerDAO.

On the evening of November 16, Alex Svanevik, chief operating officer of the data analysis platform Nansen,on social mediaPublished data for GUSD. There are 480 million in MakerDAO's PSM contract, accounting for 73% of the total GUSD; in the last 7 days, GUSD has suffered a large number of redemptions. GUSD is issued by the crypto exchange Gemini.

Data DisplayData Display, in the past 24 hours, the funds of the Gemini exchange have flowed out of 850 million US dollars, which seems to be similar to the situation at the beginning of the run on FTX.

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Risks of Genesis

The root cause of Gemini's risk lies in Genesis. If Genesis solves its own problems, Gemini's crisis will naturally be resolved.

We know that Genesis and Grayscale, which manages a large number of encrypted assets, belong to DCG. After Genesis announced the suspension of withdrawals, there were rumors in the market that DCG might shut down Grayscale in order to use the locked BTC to save Genesis. Although this possibility is low, it also shows that Genesis' parent company is stronger. Previously Genesis said it had$175 million in funds locked in FTXTrading accounts, but Grayscale can generate $200 million in annual revenue on just 2% management fees, which may already exceed Genesis' shortfall.

Although Genesis and Grayscale belong to the same major shareholder, the two operate independently. In theory, there is also the possibility that Genesis will go bankrupt and Grayscale will continue to make money. According to Gemini, Genesis and its parent company DCGpromise to do its bestduty to customers, which may allay concerns.

The risk exposure of Genesis is not particularly large, and it is still possible to resume normal operations through financing. It is reported that,andandCrypto Market Maker B2C2first level title

Gemini's Risk Isolation

According to the current situation, whether Gemini Earn can return to normal depends entirely on Genesis. But even if the problem of Gemini Earn cannot be resolved, it is still a small probability event that the risk can be transmitted to the entire Gemini exchange.

According to Gemini's description, Gemini is a fully reserved exchange, and Gemini Trust Company, LLC is a trustee and qualified custodian under the New York Banking Act and is licensed by the New York State Department of Financial Services (NYDFS). According to NYDFS requirements, Gemini must hold capital in excess of customer deposits at any time and must report significant changes in capital to regulators.

Gemini said that the risk is isolated, and the funds of exchange users can be withdrawn at any time. Even the staking business, which can also earn profits, is independent of Earn.

The advantage of this approach is that the risk of each thunderstorm is controllable, but if a small-scale thunderstorm occurs, under the current circumstances, funds will be redeemed on a large scale due to FUD.

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Risk of GUSD

According to the data of Dai Stats, the amount of DAI generated through GUSD PSM is about 491 million, which is already close to the upper limit of 500 million, which has further increased compared with the data released by Alex Svanevik. It shows that there may indeed be users who hold GUSD worried about problems with GUSD, and directly exchange GUSD 1:1 into DAI with better liquidity through PSM.

This does not mean that GUSD and MakerDAO will have problems. MakerDAO also pointed out today that GUSD’s reserves and Gemini Earn areisolated, MakerDAO, Maker Protocol, and the DAI stablecoin are not invested in Gemini Earn or related products in any way. Every 1 GUSD issued is backed by a corresponding US dollar.

Although GUSD did not have a strong sense of existence before, it is also one of the most compliant stablecoins. In 2018, the New York Department of Financial Services (NYDFS) approved the issuance of Paxos' PAX and Gemini's GUSD, which are the first batch of compliant stablecoins.

Gemini's official website publishes the GUSD reserve report and the monthly audit report issued by an independent certified public accounting firm BPM LLP. As of September 30, GUSD’s reserves totaled about 331 million US dollars. At this time, the number of GUSD issued was 330 million. There are sufficient reserves, and about 98% of the reserve assets are in the form of cash.

Gemini Earn suspends withdrawals and analyzes the impact of GUSD on its partner MakerDAO

The rapid growth of GUSD is after the cooperation with MakerDAO. On September 29th, Gemini co-founder and CEO Tyler Winklevoss posted on the MakerDAO forumGUSD and MakerDAO Cooperation AnnouncementThe post will provide an annualized 1.25% fixed rate of return to GUSD in the MakerDAO PSM starting from October 1st.Related reading: "Coinbase and Gemini's "Storage Pull" Controversy, MakerDAO Wins"

summary

Although Gemini suspended withdrawals due to Earn, the exchange encountered capital flight, and the circulation of GUSD has also dropped by 27.1% compared with the highest point, and the GUSD in MakerDAO PSM is close to the upper limit, and the liquidity on the chain may be insufficient.

However, according to the current situation, GUSD’s reserves and the affected Gemini Earn are independent. GUSD is one of the most compliant stablecoins, and there are monthly audits. There is no evidence that GUSD will be affected, and MakerDAO is therefore affected. The probability of being involved is also extremely low. If there is a problem with GUSD, it means that the current audits of all centralized stablecoins are useless, and other stablecoins will also encounter a crisis of trust.