On Monday (10 September 2018), two regulated price-stable cryptocurrencies (stablecoins) were launched: Gemini dollar (GUSD) and Paxos Standard (PAX). Here, we examine the similarities and differences between these two new cryptocurrencies.
What GUSD and PAX Have in Common
Both of these are:
- the world's first-ever regulated stablecoins, approved and regulated by the New York State Department of Financial Services (NYDFS);
- subject to the stringent requirements of the NYDFS, which means, for example, that Gemini and Paxos must
- "implement, monitor and update effective risk-based controls and appropriate BSA/AML and OFAC controls";
- "implement, monitor and update effective risk-based controls to prevent and respond to any potential or actual wrongful use of stablecoin, including but not limited to its use in illegal activity, market manipulation, or other similar misconduct";
- warn consumers "that any stablecoin and/or the fiat currency available upon redemption of any stablecoin may be forfeited if the stablecoin has been, or is being used for, illegal activity";
- warn consumers "that any stablecoin may be subject to forfeiture to, or seizure by, a law enforcement agency in the event that there is a legal order or other legal process";
- warn consumers that "any stablecoin or fiat currency available upon exchange of stablecoin that has been subject to freezing, forfeiture to or seizure by a law enforcement agency, and/or subject to any similar limitation on its use, may be wholly and permanently unrecoverable and unusable and may, in appropriate circumstances, be destroyed"
- issued by companies that received limited purpose trust company charters from NYDFS in 2015;
- fully collateralized 1:1 by the U.S. dollar (in FDIC-insured U.S. bank accounts), which means the number of such tokens in circulation will always exactly match the number of dollars in reserve, with USD balances audited (externally) on a monthly basis;
- built on the Ethereum blockchain (designed as Ethereum tokens written according to the ERC-20 standard), which means they can be stored in any Ethereum wallet;
- useful for hedging against the volatility of other cryptoassets, for settling transactions outside of banking hours, or for eliminating cross-border transaction fees;
- happy to let the public view the smart contract code;
- competing with each other, rather than with the highly controversial Tether (USDT), which, as an unregulated stablecoin, (unlike these two) has no AML requirements.
How GUSD and PAX Are Different
As far as consumers are concerned, GUSD and PAX are much more similar than they are different. Here are the very few differences that do exist:
- The PAX ERC-20 contract code is available for technical review at https://github.com/paxosglobal/pax-contracts.
- Thanks to a report by MarketWatch, we know Gemini keeps its USD deposits at State Street Bank, but all we know about Paxos and its USD deposits, according to an interview the Paxos CEO gave to Forbes, is that they are held by "four separate U.S.-domiciled banking partners."
- Gemini's USD deposit balances are audited monthly by BPM, one of the largest California-based accounting and consulting firms in the U.S., while in the case of Paxos, the external monthly audits are carried out by Withum, a nationally ranked Top 25 auditing firm.
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