Bitcoin

Gemini dollar’s puzzling slide amid soaring competitors raises questions

Quick Take

  • Gemini dollar has lost 80% of its market cap, while its rivals grow to new heights
  • It might be tied to rebates

Most stablecoins have enjoyed a big pump since Tether and Bitfinex got entangled in a battle with the New York Attorney General’s office. 

But there has been one striking exception to this trend. Gemini’s aptly named Gemini dollar, which like other stablecoins aims to mimic the price of one U.S. dollar, has seen its market capitalization collapse while its rivals soared to new all-time highs. 

In recent weeks, Paxos’ Pax doubled its market cap to nearly $200 million. Gemini, on the other hand, has sunk below $22 million.

It’s not exactly clear why Gemini has been struggling, but sources in the trading community think it could be tied to a rebate program the firm used to spur adoption of the coins. As The Block first reported, Gemini at the end of last year offered trading firms discounted Gemini dollars with the hope that they would use it over Tether. Gemini wasn’t alone in this practice, Paxos also offered rebates. 

Still, market observers say Gemini might not have been selective enough in how it meted out its rebates, as the discounted Gemini dollars got into the hands of traders who then swapped them one-for-one with other stablecoins to then redeem them for a profit. 

“Perhaps $80mm of GUSD’s float was driven by temporary incentive,” B2C2’s Max Boonen commented in an email. 

Su Zhu, CIO of Three Arrows Capital, also weighed in, saying Houbi “has finally redeemed the GUSD that they got stuffed with by arbitraguers exploiting the USD stablecoin swap facilitiy.”

Another market observer called rebates “inconsequential when you look at the bigger picture of which stablecoins are succeeding versus not.”

So what else might be behind Gemini dollar’s woes? The answer has more to do with the competition than Gemini itself.

TrueUSD, one competitor, has a first mover advantage over Gemini. Elsewhere, USDC benefits from the large client bases of Coinbase and Circle. Together, they command 10% of all trading volumes verses Gemini’s 1%. As for Paxos, it boasts its instant redemptions and creations. 

Then there’s something all three benefit from that Gemini does not: a listing on Binance, the largest source of liquidity in the entire cryptocurrency market. Sources familiar with the situation say Binance and Gemini couldn’t agree on terms for the coin’s listing on the exchange.

“Binance is a big factor,” a source said. “Liquidity begets liquidity, so an obvious difference in momentum gets compounded.”

Whatever the reason for Gemini dollar’s precipitous drop, it would be unwise for market observers to underestimate the tenacity of the twins behind it: Cameron and Tyler Winklevoss, who have been actively inking deals with new partners to spur adoption, including Flexa and BlockFi.