Gemini’s Head of Business Development, Sarah Olsen, published a three-page whitepaper called “Stablecoins: Understanding Counterparty Risk” that is dated October 18. Olsen also wrote a Medium post that summarizes the main takeaways from the paper.
Gemini made headlines back in Setpember after the company announced their new Gemini dollar (GUSD) stablecoin pegged at a 1:1 ratio with the US Dollar.
Stablecoins Bridge The Gap
In the whitepaper, Olsen argues the larger cryptocurrency market is still immature and regularly experiences volatility. She writes about the “underlying friction” in converting cryptocurrency to fiat since traditional money is only able to “move” during normal banking hours.
According to Olsen, stablecoins bridge these kinds of gaps because something like the Gemini dollar “enables the value of fiat to move as quickly and seamlessly as cryptocurrency.” Olsen admits that many stablecoins like Tether have not been good on the transparency front, and acknowledges various firms issuing stablecoins do so without proper licensing.
She asserts this is an issue because it creates a situation where “there are no well understood legal processes in place in the event of insolvency.”
Regulation And Oversight
Olsen adds it is necessary to “underwrite the counterparty risk of both the stablecoin issuer and the institutions custodying the backing assets” Additionally, she writes those issuing stablecoins should subject themselves to financial examinations of the underlying stable assets, and be willing to undergo audits of the stablecoin’s smart contract code.
Olsen asserts stablecoins should require regulation and oversight in order to “appropriately protect end users utilizing this digital asset.” She believes digital currencies with stable value are a “huge step forward for the future of money,” but must come with adequate counterparty risk and oversight to “ensure its true stability.”
