Tyler and Cameron Winklevoss on Being the ‘Fastest Tortoise in the Race’

Gemini’s Tyler and Cameron Winklevoss, who serve as chief executive and president, respectively, discuss their new ad campaign — what they mean when they say crypto needs rules, why they agree in certain respects with some of their critics, and what the general reaction has been. They discuss why they launched a stablecoin, why they chose the stablecoin structure of dollar reserves and GUSD’s role in an arbitrage involving a Chinese exchange and a competing stablecoin. They also explain how they intend to make a Bitcoin ETF a reality, what they think of SEC Commissioner Hester Peirce’s dissent and what they intend for the Virtual Commodity Association. Plus, the brothers talk about why their goal is to be “the fastest tortoise in the race.”

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Episode links:

Gemini’s new ad campaign: https://www.wsj.com/articles/winklevosses-cryptocurrency-exchange-says-the-revolution-needs-rules-11546599600

Negative reaction to Gemini ad campaign from crypto community:

Erik Voorhees: https://twitter.com/ErikVoorhees/status/1081204430857416706

Gemini USD gets approval of New York Department of Financial Services: https://www.bloomberg.com/news/articles/2018-09-10/controversial-crypto-coin-tether-to-get-regulated-competitors

Past episodes with other stablecoin projects:

USDC/Circle: https://unchainedpodcast.com/circles-jeremy-allaire-and-sean-neville-on-why-crypto-will-be-bigger-than-the-web-ep-71/

TrueUSD: https://unchainedpodcast.com/harbor-and-trusttoken-on-why-they-dont-mind-being-unsexy-ep-77/

MakerDAO: https://unchainedpodcast.com/why-its-so-hard-to-keep-stablecoins-stable/ https://unchainedpodcast.com/rune-christensen-of-makerdao-on-its-15-million-from-andreessen-horowitz-ep-039/

Bloomberg reporter Matt Leising on Tether: https://unchainedpodcast.com/bloombergs-matt-leising-on-why-it-appears-tether-has-sufficient-dollar-reserves-ep-052/

Trading of GUSD for Pax and cashing out via Huobi:

GUSD distribution on Etherscan: https://etherscan.io/token/tokenholderchart/0x056fd409e1d7a124bd7017459dfea2f387b6d5cd

Cameron and Tyler’s AMA on Reddit: https://www.reddit.com/r/IAmA/comments/adk0ua/we_are_cameron_and_tyler_winklevoss_cofounders_of/edhlb3b/

SEC commissioner Hester Peirce’s dissent on Bitcoin ETF decision: https://www.sec.gov/news/public-statement/peirce-dissent-34-83723

Bitcoin Cash launch on Gemini: https://medium.com/gemini/bitcoin-cash-is-now-available-on-gemini-cc75299d892f

The 51% attack on Ethereum Classic: https://unchainedpodcast.com/the-ethereum-classic-51-attack-how-it-happened-and-why-the-price-didnt-crash-ep-055/

Gemini year in review https://medium.com/gemini/geminis-2018-year-in-review-1cd0815dd45e

Virtual Commodity Association: https://medium.com/gemini/joining-the-virtual-commodity-association-8bdf3b2f803e

Gemini’s new mobile app: https://medium.com/gemini/introducing-the-gemini-mobile-app-crypto-on-the-go-1448d2ae74fa

Transcript:

Laura Shin:

Hi, everyone. Welcome to Unchained, your no hype resource for all things crypto. I’m your host, Laura Shin. If you’ve been enjoying Unchained, pop onto iTunes to give us a top rating or review that helps other listeners find the show. Here’s a pause for the ads.

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Laura Shin:
My guests today are Tyler and Cameron Winklevoss, the CEO and president, respectively, of Gemini. Welcome, Cameron and Tyler.

Tyler and Cameron Winklevoss of Gemini:

Hey, Laura. Thanks for having us.

Gemini:

Hey, how are you doing? Thanks, Laura.

Laura Shin:

The last time I had you guys on the show was in 2016 and a lot has happened since then. Gemini has undergone major changes and we’ll actually start with talking about one of them, your new ad campaign. What is the message of the campaign and where are the ads running?

Gemini:

Sure. So, we just launched a new ad campaign. It’s targeted in New York City. It’s in the subways, on taxicabs. We’ve got a few billboards as well, as well as a crypto-bus and the message is basically the revolution needs rules, and it also coincides with our mobile app launch in December.

Laura Shin:

And why are you targeting only New York City?

Gemini:

So, this is our first campaign and we’re a New York based company, so it made sense to sort of test this city and it also happens to be one of the financial capitals of the world, and also has one of the preeminent Bitcoin, or rather, virtual currency regulators, New York DFS. So, it felt like a great starting point to start a campaign.

Gemini:

Yeah, New York City, or the state of New York, is really ground zero for building a framework for cryptocurrency companies to become licensed, compliant businesses, and so that was…they’re definitely a pioneer’s state. It’s very much the reason why we built Gemini in New York and why we have almost 200 employees here and growing, and so it sort of made sense to start it in our backyard where this all happened and Cameron and myself, we testified at the Bitcoin Hearings. I think they were in 2014 and helped, you know, educate the regulators and shape the regulation to be thoughtful for crypto companies, so this is definitely the right place for us to start this campaign, and we’ll see how it goes and then we’ll consider rolling it out to other cities and jurisdictions.

Laura Shin:

So, just from the way you’re answering it, it does seem like you’re almost saying that the targeted audience for the ads is the regulators. Is that the case?

Gemini:

No.

Gemini:

No, definitely customers. You know, prospective customers. We actually had a meet in the street event yesterday at Zuccotti Park, which I believe is where the first U.S. Stock Exchange got its early beginnings, almost 200 years ago, and you know it’s really interesting. So far, the feedback we’re getting is the campaign has really struck a chord, especially with a group of folks who actually believe in crypto. They’ve been reading about it for years and they don’t really need to be sold on the dream of crypto or its promise.

What they’re unsure about is how to engage in crypto in a safe and compliant manner, and so we’re really trying to just start the conversation and let people know that there are regulated exchanges and custodians like Gemini where you can easily buy, sell, and store your crypto and it’s not some Wild West.

We have to continue to change the narrative. I’m sure you remember the Silk Road days where you couldn’t really read a single article without some mention, usually it was a headline or you know in the first part of the article, about Silk Road and how Bitcoin is anonymous and only used for illicit activity, and we know how wrong that narrative is and really has proven to be, but that didn’t take weeks or months to shake. It took years and even to this day, there are a lot of people who still believe Bitcoin is truly anonymous.

It’s simply not the case, so it’s really important for the community for us to really start continuing the dialogue and educating people that this is a very valid technology and there’s safe ways to engage with it because what we really don’t want is a lot of sophisticated people who believe in the technology who miss out on that next wave of getting involved.

Gemini:

Yeah, the conversation today is so much different than it was even two years ago. People believe that this space is the future. They believe in the dream of crypto. They just don’t know how to get involved with the dream without getting burned and so that’s really where the dialogue is right now, and this isn’t about building rules for crypto itself. We think the rules of math and cryptography are quite good. This is about building rules for the crypto companies that people rely on and trust with their money. This is about Mt. Gox type scenarios. This isn’t a crypto problem per se.

Laura Shin:

And just out of curiosity, who came to Zuccotti, like when you were saying that those people were receptive and were saying they were responding well to the ads? Like who were those people?

Gemini:

They were people who, a lot of them worked in the financial district, so they were going for a cup of coffee or lunch, or commuting to work, or leaving work. A lot of people were professionals in the area and then some people who came specifically to the area because they saw the Tweet and we also had a crypto bus, which was super hard to miss. It had some advertising slogans on it, and we had free coffee from Brooklyn Roasters, so that you know that alone could’ve excited people to show up.

Laura Shin:

And so, it sounds like it was kind of the traditional financial services community.

Gemini:

You know there’s people who were already in crypto. There was people who aren’t in crypto, but said hey, you know, I’m going to think about this again. I’m going to go talk…there’s one…I think one gentleman said I’m going to talk to my son. My son’s been talking to me about this for years and as soon as I get home, I’m going to restart that conversation, because he wasn’t really sure about a safe way to engage. So, there was a real big mix.

Laura Shin:

Because the thing is that, you know, at least on crypto Twitter, it didn’t seem like the community had responded super well to the ads. I’m sure you’ve seen the tweets because they keep tagging you. So, for instance, or they keep tagging Gemini. Like Erik Voorhees, the CEO of ShapeShift tweeted, and this was in response to one of the ads that says crypto needs rules. He said, hey Gemini. Crypto has lots of rules already. Crypto is rules. These rules are stronger than any political inscriptions. They are objective, open and noble to all parties. They transcend borders and they are enforced by mathematics. Crypto is a system of laws, not men. I saw Dan McArdle, the cofounder of Messari, who said the ads prompted him to close his Gemini account. So, what’s your response to these negative reactions?

Gemini:

Well, we certainly know that we’re not going to please everybody, and I will say that I actually agree with Erik. Erik’s a very thoughtful thinker and an excellent writer, and I agree. Crypto doesn’t need rules because it has the rules of math and cryptography. The rules that we’re talking about are the regulation oversight on how people use the technology and how people build the technology and how companies, like Gemini for example, custody assets and what kind of oversight.

We have a regulator who checks to make sure that we’re doing what we say we’re going to do, but the great thing about crypto is it’s really a continuum. It’s a gradient. You can participate in a centralized fashion. You can signup to Gemini, download our mobile app, onboard in about two minutes and you can store your crypto with us, but whenever you decide that you don’t want to be in the centralized, sort of, opt-chain part of that crypto experience, you can opt out of Gemini at any point and withdraw your assets into the decentralized blockchain and store it yourself.

So, effectively, you know Gemini’s oversight, we believe the majority of people are going to want that type of experience, but there’s nothing preventing people from living in more of a P2P decentralized version. For the same reason, you know, there’s some people who don’t want to store their cash in a bank. Their alternative, for the most part, is storing it in a mattress. Most people don’t do that. Some people do. Most people, if they want to buy gold or exposure to gold, they buy a gold ETF. There are certain individuals of their gold bar stored with a qualified custodian, and they want to store it themselves so they go through the effort and the trouble of building a safe and securing it, but one of the interesting things about crypto is that if you want to live in the decentralized version of the world, it’s actually a lot more viable and practical.

You can actually move substantial amounts of the value through the blockchain and it’s much more practical than actually storing a lot of cash or you know moving gold bars. When the zombies come running it’s really hard to outrun them if you’re carrying a bunch of gold bars, but if you’re carrying, you know, a treasure wallet with crypto that’s actually a viable strategy and so, you know, there are going to be folks that don’t ever want to engage with Gemini and we think that’s totally fine.

Gemini:

Right.

Laura Shin:

Yeah, that can be your next ad campaign. Outrun the zombies with your crypto.

Gemini:

Totally and just to further hit the point, you know there’s a lot of people who drive sport utility vehicles, SUVs, and I would venture a bet that 99 percent of those folks never go off-roading and never will go off-roading. They’re staying on the highways. They’re commuting around suburbia, but having that optionality, it’s nice to know that they have it and the same thing with Gemini. If you want to stay on Gemini, that’s great. If you want to go off-roading in crypto and take your crypto with you wherever you go, you can do that, too. That’s great.

Gemini:

Right, but when you talk about a Bitcoin exchange there are humans involved. There are people. It’s not this lab experiment that’s all software and protocols. There are entrepreneurs who are making decisions about how to store your value and there are serious ramifications if they get that wrong. So, I think that’s what we’re talking about. It’s a sort of simplistic reading of the ad campaign to say oh we think, you know, the Bitcoin protocol should be regulated.

That’s not really what we’re talking about. We’re talking about places that act like banks or exchanges that interact with the protocols that need regulatory oversight in a thoughtful way. If Mt. Gox had been under regulatory oversight, it would have been a lot harder for that to have happened, what happened. It would be a lot less likely and that’s really the point that we’re making and that’s really the point that people interact with. They recognize if they want to go and get involved in crypto and buy some, they’re going to have to do it most likely interfaced with a company and what is that company doing. Who’s behind it? Who’s watching? Who’s guarding the guards themselves, so to speak?

For us it’s the state of New York and the New York Department of Financial Services. For other financial institutions it’s other regulators, but we think that’s a really important piece of the larger puzzle in the ecosystem and that’s been important in the financial industry for a long, long time. We’re a New York Trust company under New York banking law and you know history over the last hundred years or so has taught us that thoughtful regulation builds the healthiest, most vibrant markets, like the U.S. for instance, and that’s what we really want to bring to crypto.

We want to get rid of the chaos and the Wild West and sort of the mystery, because like I said before, a lot of people who believe in the dream, they just don’t…they’re scared, and they don’t understand how to become part of it.

Laura Shin:

Yeah, but I think…so, I still think that there is a certain tension there. The way that you’ve been talking in your answer, it’s kind of like you have been positioning it almost sort of different choices like in terms of convenience, right. Like are you going to keep the gold bars yourself or are you going to have someone else monitor them and safeguard them for you, that kind of thing, but you know I also know there’s this other analogy you guys have used a lot, which is you have often said that finance should work like email and that it should be available 24 / 7 and you shouldn’t have to wait three or five days to send somebody money.

But then, you know, as you’ve been discussing, you also say that you believe that cryptocurrency investors need the same protections that investors get in more traditional markets and so the traditional financial system has a lot of surveillance built into it. So, if anyone does anything shady with their money banks will have to let regulators know via a suspicious activity report and that doesn’t happen with email, right.

Gmail does not screen all the messages and you know keep track of who all the senders and recipients are of all the messages and then cut off people from their email if their caught engaging in illicit activity, but you know that does happen with the financial system. So, in that regard, like those are really different visions, so how do you square those two kind of visions for what crypto could be?

Gemini:

So, I think with respect to email, I think it’s important to note that email providers are subpoenaed around the clock for information related to any kind of illegal activity from state, federal, international law enforcement and governmental authorities, so I don’t think it’s quite so black and white. You’re not operating in email in this space where your activity isn’t being monitored if you’re up to bad activity, but I think that look, we’re talking about value and people…value enables bad actors to commit atrocious acts. Terrorist financing is a real thing. Being a New Yorker and living in New York, you know, September 11, is a real thing and that’s really, that’s the overarching goal of BSA AML.

It is not to create a big brother state or a surveillance state. It is to prevent these horrible crimes from happening and it’s pretty darn effective, and I think for the vast, vast majority of people they’re okay living with that reality that you know their transactions may be monitored and that’s fine and taking it over to the sort of the market surveillance piece of it. Every capital market in the equities and derivatives world has robust market surveillance.

Every time you buy a share of Apple or Tesla that is routed, presumably almost always, to an exchange where there’s monitoring going on and that is to protect you. The key thing here is consumer protection. It’s not, you know, consumer violation of privacy. It’s consumer protection and quite frankly a lot of email providers and a lot of the social networks, I’m not so sure they aren’t reading everything you send.

Like every time I look at a product on the internet…in fact, I was listening to a podcast over the break and the same, you know an Apple podcast, the same podcast was being shown up in my YouTube feed. So, that’s a Google company and I was listening to an Apple…on an Apple device and an Apple service, so I’m kind of wondering. You know these guys aren’t just looking for themselves. They also seem to be talking to each other, so I think that there’s a lot of that actually going on.

Laura Shin:

You’re right. Now that I think about it, I was googling something on my Apple iPhone, in Safari, and then later my YouTube kept giving me an ad for it. Anyway, okay, you’re right. Clearly everything going on, on the internet is shady so, but I wanted to ask you about it because you brought up the market surveillance. You have this new technology, the NASDAQ Smart Market surveillance technology to monitor the Gemini Marketplace, so what exactly is that doing.

Gemini:

So, basically the idea is you’re monitoring for manipulative and deceptive practices. So, people are trading in a way that’s abusive and unfair and what we’re doing here is we’re not reinventing the wheel or bringing something that’s so different to the table that you don’t already experience and so when you trade a share of Apple through your eTrade account, these market surveillance products are working on the exchanges where you purchase that share and it affords you a safe conduct, rules based marketplace, and we just want to bring the same standard to the crypto space and the regulators want us to do that, too, and they’ve made that pretty abundantly clear in terms of the SEC, CFTC.

They want to see exchanges surveilling the marketplace for bad practices and they also want to see them coordinating and talking with each other to make sure. You know manipulation doesn’t always happen in a vacuum on one place. It’s usually someone trading on multiple venues, so there has to be just similar to the equity’s world or the derivatives and futures world. These exchanges talk to each other and identify these practices that are unfair, and we want to provide the same level of fairness and experience to our marketplace and the crypto industry.

That’s what this boils down to. That’s where it’s coming from and it’s also been requested pretty openly in many shapes and forms from the regulators and it’s basically a homework assignment that we and everyone else in the industry have to do in order to push the ball forward. If we want so see things like crypto ETS and more crypto futures products and more great financial instruments using crypto, we’ve got to answer this call with these types of solutions and that’s not just me saying that. That’s the regulators of the most sophisticated financial market in the world saying that.

Laura Shin:

All right, so we’re going to talk more about regulators and the Bitcoin ETF in a little bit, but first I actually want to talk with you about your stablecoin, the Gemini dollar. So, why did you decide to launch a stablecoin and how is it differentiated from the others, particularly something like the Paxos standard, which as far as I can tell is roughly the same structure.

Gemini:

You know, the stablecoin’s a really interesting project and we felt really passionate about it. I think it’s our view is that the first use case scenario for crypto was bringing commodities onto a blockchain. We consider Bitcoin a commodity. The CFTC does and most U.S. regulators put it in that jurisdiction and that was the first use case of crypto as we know it, ever, and then there was the whole…then people figure out how to put securities on blockchain and what most people read about and saw was the ICO craze, which I sort of refer to as noncompliant securities. The new rebranding these days is STO, security token offerings.

Gemini:

And I call them the pets.com of security token offerings, the ICOs, the first wave that blew up.

Gemini:

Yeah, the first wave that people didn’t realize they had to follow securities rules…

Laura Shin:

Although, however, I must note that you guys did invest in Tezos, which had an ICO, so…

Gemini:

Yeah and definitely so it’s a really umbrella term and Cameron’s more referring to the way things that were securities didn’t follow securities laws and so it’s sort of a misfire. The new school of ICOs rebranded as STOs recognize that hey if we’re a security, we’ve got to follow securities laws, which have been in place and well tested and understood for the last 80 years. So, it’s been really interesting to see this evolution from you’ve got commodities on the blockchain, Bitcoin and Ether, and maybe Ether, arguably, started off as a security, but now it’s jumped over the chasm into commodity land because it’s sufficiently decentralized and no longer trips up the Howey test, but there hasn’t really been a currency on the blockchain, a good medium of exchange, and even though Bitcoin was called a digital currency from many years, you know almost from inception, and oftentimes that’s the umbrella term for the industry, Bitcoin’s really been a virtual commodity and it was the only one.

When Gemini started, it was really a Bitcoin exchange because there was nothing else and then people figured out virtual securities. They were called ICOs, now today everyone wants to call them STOs, but there really wasn’t a digital asset that acted like a currency and a good medium of exchange and unit of account.

Commodities like Bitcoin, we believe, are stores of value. It’s really hard to…you don’t really want to spend a good store of value. If you invest in a share of Apple, you don’t want to use it to buy your cup of coffee because you’re hoping that goes up, so no one wants to be the person who buys the Bitcoin pizza again. The pizza that cost 20 dollars, which was 10 thousand Bitcoin, something like I don’t know eight years ago, but today it’s something like a 50 million dollar, depending on the price, pizza. If it’s a Papa John’s Pizza it might’ve been really good, but it probably wasn’t that good and so…

Laura Shin:

Definitely not.

Gemini:

And we actually did this, too. We bought a couple of things with Bitcoin. We bought tickets to space on Richard Branson’s Virgin Galactic and in hindsight it turns out we probably overpaid 10x. We actually invested certain ICOs and Tezos with Bitcoin and depending on how much Tezos appreciates versus Bitcoin, we may have really overpaid. We had preferred to make that investment in just cash because we kind of know it doesn’t have the volatility, it’s more stable and it’s not…cash is not a great store of value.

Over the last, I don’t know, 40 years the purchasing power of a dollar has lost, you know, 87 percent of its purchasing power whereas, something like gold, on the other hand, has gone up 23 times. So, you’ve got gold on the blockchain. You’ve got securities on the blockchain. We need to get dollars in blockchain and forgive me if this is a long way of saying that’s exactly what the Gemini dollar is. It’s putting dollars on the blockchain that will empower and fuel the decentralized app movement and all of these other cool, use case scenarios.

Laura Shin:

And but prior to the launch of that, you had Tether, the Circle or USDC, which was by Circle. People can listen to my episode with the cofounders of Circle to hear more about that. You had TrueUSD, I mean there were kind of a lot. Obviously, Maker Dai is a popular stablecoin, so there were a lot of other options and so why did you guys decide to launch a new one and how is it different from some of the others, in particular the Paxos one.

Gemini:

So, I think we should…it’s important to note that we launched in September. I think that, you know, we weren’t aware of the other projects. Obviously, Paxos launched the same day and Circle, I think, followed a month thereafter, so we…you know I think our view, obviously, Tether is Tether. I don’t think we need to spend a whole lot of time on why that’s problematic as a stablecoin, but I think one of the…the biggest difference perhaps between the Gemini dollar and the other stablecoins is we have exhaustively and publicly stated where the dollars are held.

What bank and that bank is State Street. It’s one of the largest custodians in the world. It took us a very long time to build that relationship, go through the diligence process, but the great thing about State Street is it has a tremendous balance sheet. It has effectively unlimited capacity and it’s been around for 225 years or so.

Gemini:

It’s the second oldest company in America.

Gemini:

In America.

Laura Shin:

Wow.

Gemini:

And we’re really proud of that and so when you effectively hold a Gemini dollar out in the ether, you know that the dollar backing that token is help in a institution that has safety and soundness, and I think that no other stablecoin issuer discloses their banking partner, and I think there’s two reasons for that.

One, they’re not proud of their partner. It could be somewhat of a fleabag bank and doesn’t have, you know, much of a reputation or credibility, or the second reason, which is quite frankly a lot worse, is that the bank doesn’t know what they’re banking, and so there’s some kind of layer between the stablecoin, bank account, and so they have this omnibus account, which is holding these dollars and they just assume well it’s another business with dollars, and we saw this a lot in the early days of Bitcoin, where companies were opening up bank accounts and then eventually compliance department does an account review.

They look at the bank account and they say oh my God, what is this. We’re banking the Bitcoin, or a crypto company. This is not what we understood. This is not what we signed up and they effectively give you, you know, 30 days to close the account and remove the funds and so nobody knows where TrueUSD is banking.

I have no idea where Circle stores their dollars. I have no idea where Paxos stores their dollars, so it’s impossible to assess the counterparty risk of holding that stablecoin. Is the bank solvent? Is it sound? Is it safe?

Gemini:

Is sit in the U.S.?

Gemini:

Is it in the U.S.? So, is it afforded FDIC insurance? Is Treasury going to wake up one day and say we’re going to freeze that and take a look in there and unwind it and if that is the case, which has happened before. Look back to Mt. Gox and the Dwolla wallets. I think the feds seized something like 10 million dollars of value and those take a long time to unwind and figure out and so then you’re stuck with a stablecoin that doesn’t actually have dollars backing it and that’s a problem.

Gemini:

And it’s sort of like a game of musical chairs, right, for the people holding those coins and that sort of goes back to the heart of our marketing campaign is that for these type of situations consumers should understand where their dollars are and that’s the kind of rules and transparency that the market desperately needs.

Laura Shin:

Yeah and I just want to clarify, I do think Tether has revealed its banking relationships, but you’re right. They don’t have the same stature as State Street, but I also did then want to ask, you know, obviously it is a choice to kind of make the trust in that system or make the source of the trust in that system a bank like State Street. Whereas, when you have something like Maker Dao where it’s controlled by smart contracts and it’s over collateralized and you can sort of see everything that’s happening on the blockchain, why did you sort of choose against something in that vein?

Gemini:

So, I think part of it is just simplicity. People understand the U.S. dollar and so simply putting it on the blockchain it sort of removes the whole educational barrier. Most people around this world are perfectly find holding dollars. In fact, they would love to hold dollars instead of their local currency, like the bolivar in Venezuela or you know if you’re in Zimbabwe, they’ve got the trillion-dollar bill hyperinflation. You know, I think something like 66 percent of our 100-dollar bills, U.S. dollar bills are outside the country. They’re in Russia. They’re in Cuba. They’re in places where they’re desperate for, you know, a U.S. dollar which is not arguably…again, not necessarily the best store of value, but substantially better than what the other alternative that they have.

So, the simple, elegant nature of it and the other thing is most people still…well, I’d say almost everybody still denominates things in dollars. We buy our groceries in dollars. We think about value. I think about Bitcoin in dollars, so that was probably the big thing there. With the Maker Dai there’s an issue with, obviously, as you mentioned overcollateralization and then one other point, though, I think that there is also a tremendous amount of misinformation around which of these products are licensed.

Gemini Dollar, we worked with New York DFS for over a year to get approval to issue, effectively, virtual currency in the form of the Gemini dollar. I believe PAX received the same approval. Circle is not a licensed issuer. They do not have approval from a regulatory authority to issue. TrueUSD does not have regulatory authority. It is a…and neither does Tether. I know that’s probably obvious, but it’s worth saying it again because people on Twitter, they say wait Tether’s registered as an MSB with FinCEN, therefore they’re licensed. No, that is not a license. That is simply saying hey, I’ve got, you know, reporting obligations and we’re going to try and follow.

Gemini:

Well, that’s one piece of the puzzle and that’s the easiest piece. It’s actually, if you do the legal analysis, it’s money transmission on a state by state basis and I’ve yet to see the licensing for TrueUSD and many of these projects that’s sufficient and really covers the 49-state licensing but backing up a little bit.

This is really a trust product and we’re pretty good at trust. We’re a trust company. We’ve been doing this for a while. People tend to trust us. There’s no way to get around the trust and the humans behind it because its centrally issued and that’s why the regulatory oversight is so important. We have oversight. State Street has oversight. Our auditor is a licensed CPA. They have oversight. We have a security pen test team pen test the contract, so we built this network in what we trust, and we think we’ve done that better than anybody.

Laura Shin:

All right. We’re going to keep discussing a few other issues with the stable client and also discuss a Bitcoin ETF in a moment, but first a quick word from our fabulous sponsors.

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Laura Shin:

Back to my conversation with Cameron and Tyler. There has been a controversy over discounts that you offered on the Gemini dollar to over the counter trading desks, which incentivized some traders to buy large volumes of Gemini dollars with the discount and then exchanged those Gemini dollars for the Paxos standard, redeemed those for dollars, and then pocket the difference, which is basically like a very easy two percent profit. So, I guess these traders were trying to withdraw their PAX through the Huobi exchange and Huobi has this 10-thousand-dollar withdrawal limit, and so these users were creating sometimes like up to 30 different accounts under different names.

So, what was the intended effect of offering the discount and did you get the effect that you wanted?

Gemini:

I think every, almost every, stablecoin that we’re aware of offers some sort of incentive and that’s typical of any marketplace whether it’s a stablecoin or trying to incentivize price discovery and liquidity in tight spreads. To be honest, we’re a little bit mystified by that sort of article in the sense that it seems to us like the answer’s pretty simple. People just don’t want to hold PAX.

Gemini:

Yeah. I mean have you ever heard of sour grapes? It just feels like somebody created a product and the market’s spoken and they don’t really want to hold the product. They’re redeeming that product because they don’t like it and they prefer other products like Gemini dollar, and that’s what’s happening and someone went out to a journalist and sold that story and the journalist, you know, bought it hook, line, and sinker, but I’m not sure why.

Laura Shin:

I think Chad Cascarilla, the CEO, he just wrote a blog post about it.

Gemini:

That’s what it felt like.

Gemini:

Yeah and PAX offers incentives, too. So, you’ve got two products that are offering incentives and the market has spoken and they decided that they don’t want to hold PAX.

Laura Shin:

Well, so then but one other thing that happened as a result of this, is that Huobi ended up having more than three quarters of all GUSD. Is that a problem for you? Does that matter in any way?

Gemini:

I mean, how much percentage of Tether does Binance have?

Laura Shin:

Okay, so you guys, it’s just like immaterial. Is that what you’re saying?

Gemini:

I think when people…

Gemini:

I mean, I think like so like my guess is that Binance has 30, 40 percent of the Tether in circulation. That just means what it means. You know we don’t determine where Gemini dollars go or are used. You know our user agreement prohibits them from black markets and other nefarious illicit areas, but if you, Laura, if you create a DAP tomorrow and people want to bring millions of Gemini dollars to your incredible DAP because the love it. They want to play it, use it. We don’t govern that. We don’t take a position on that. We’re totally agnostic and if people want to take Gemini dollars to Huobi and trade it there, that’s none of our business and if people, like, don’t like Paxos standards and they prefer Gemini dollars, that’s great but that’s not like…again, that’s between…that’s their decision, not ours.

Gemini:

And I think the idea that a lot of people signed up accounts with Huobi, I mean where has anybody verified that claim?

Gemini:

How would you know that?

Gemini:

I mean how would Chad know that? I mean I don’t think…

Laura Shin:

Oh, yeah. I don’t remember what he said in the blog post.

Gemini:

I’m pretty sure Huobi, out of respect and confidentiality for their clients, would not be disclosing that type of stuff if it even happened. So, nobody’s verified it. It’s just made up.

Laura Shin:

Yeah. Well, I mean, Chad in his blog post he said something about how he verified it with the actual perpetrators, or maybe perpetrators is the wrong word, but anyway. Actually, I want to move on to the Bitcoin ETF because that kind of…you guys have alluded to that through the conversation and I think it’s a really important topic. So, one of the main reasons your ETF application was rejected had to do with the unregulated nature of the crypto cash markets and obviously Gemini itself has rules and oversight, but more than 95 percent of all crypto trading volume still happens offshore on unregulated exchanges, and you said in your AMA on Reddit recently, that you’re still committed to making the ETF a reality. So, how do you plan to overcome this hurdle to get the SEC comfortable that the underlying markets are not prone to manipulation?

Gemini:

So, the quick answer is answering their call and request for more market surveillance on the crypto marketplace and we’ve started to do that with the Virtual Commodity Association SRO and bringing NASDAQ’s smartest technology to our marketplace, and those are the step in the right direction to getting regulators comfortable with eventually approving an ETF-like product.

Laura Shin:

And so also now, to argue sort of against my last question, I want to also ask about SEC Commissioner Hester Pierce’s dissent from the rejection of your ETF. She said that the SECs decision basically rested on an incorrect interpretation of the regulations. She was saying that the regulation instructs the commission to determine whether the rules of the exchange are, among other things “designed to prevent fraudulent and manipulative acts and practices and to promote just and equitable principles of trade and are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers.”

She asserts that your application met that standard and that if that yardstick were actually applied across the board then there are other commodity-based exchange traded products that would simply not have made the cut and she also continues on explaining, like, the commissions mission is to just ensure that investors have the information they need to make intelligent investment decisions and that the rules of the exchange should be designed to provide transparency and prevent manipulation, and she said your application satisfied those requirements.

So, do you agree that the SEC held you to a standard that was beyond what the regulation outlined?

Gemini:

So, I think that certainly a lot of people agree with her dissent, but at the same time look, we understand that bitcoin is a totally new asset class and we’ve got to get it right and so if the commission is taking a very conservative viewpoint in this regard because it’s really going to be the first of many and open the flood gates. You know, we can live with that. I’m okay with that.

Gemini:

And we understand it and we’re going to work hard towards meeting that. I think that investors deserve the same protections that they get if they buy a share of Tesla or Apple, and I don’t think it’s unreasonable for regulators to strive for that, and especially since, as Cameron mentioned, this would be the first of many. It’s much more than just one product. It’s a really big…it opens a big frontier and it’s got to be opened correctly.

Laura Shin:

So, one other thing I wanted to ask about from her dissent. She said that their decision not to approve the ETF inhibits institutionalization and that it also dampens innovation. What do you think of those points?

Gemini:

It’s an interesting point and there’s a lot of truth to it. I don’t know how you have it both ways. I see both sides of it, but it’s definitely a chicken and egg problem. It does make it harder to get more institutions without a regulatory blessing, although I understand how they feel that it’s…certain commissioners feel that it’s not necessarily ready for prime time, and this is a classic chicken and egg. The best we can do is continue to build and mature this market with things like market surveillance and best practices.

Laura Shin:

So, you brought up the Virtual Commodity Association, which is your self-regulatory organization that you’re trying to establish. I guess right now you just have a working group for it. So, do you intend for the VCA to be a true self-regulatory organization that has the backing of a regulator that can levy enforcements upon violators, or will it be more like a trade association? So, like just for listeners who don’t know, like for instance, FINRA is the SRO of the securities world, but it’s backed by the SEC and so if you guys do become a true SRO who will the VCA be backed by?

Gemini:

So, the goal long term is definitely to try and seek SRO status and that’s achieved, I believe, by a amendment of the Commodities and Exchange Act that would give it authority similar to what happened with the National Futures Association. I should point out that it took the NFA seven years to get that authority whereby, you know, anybody who traded derivatives and the like had to become a member of NFA and sort of prescribe or subscribe to the best practices.

Now, whether we get there, you know, that remains to be seen and how long it takes. You know it seems like there’s a lot of appetite in the CFTC, especially with commissioner contends to build a SRO that is self-policing and the reason for this and I’ll just quickly lay this out, is that securities have…the SEC and FINRA have direct supervision over securities markets and the trading thereof. The CFTC only has direct supervision over the derivatives and the NFA is the SRO of the derivatives world.

It’s like the FINRA equivalent, but they don’t have direct supervision on cash spot commodity markets like Gemini and such. They do in the event of fraud or manipulative behavior. They then can exercise direct supervision, but generally speaking these markets are not. They don’t have that layer of exchange coverage and that’s why and SRO is super important here and it’s further compounded by the fact that there’s a lot of retail consumers in this market.

It’s a very retail-driven market, so unlike other commodity cash markets where, like agriculture or energy, where it’s a lot of sophisticated players and it’s big boy, big girl rules, we have a lot of mom and pop’s and people who are getting into this, the world of crypto, which is phenomenal and fantastic and it’s probably the first time that Wall Street’s going to be the last people into the deep end, and it’s a great sort of inversion and opportunity for people to get access to this amazing asset class, but we need to have some coverage and protection, so that is definitely the goal. Whether it gets there is another question, but that’s the goal

Laura Shin:

So, obviously, regulation is a huge theme of this podcast and I just feel like this is kind of this demarcating line that I’m seeing in the crypto space in general, but there are a lot of companies that have opted out of the kind of strict regulatory regime that you guys choose to operate in and a BitLicense, I guess, is you know one really big example of that, but a lot of those companies that have opted out, they have much higher trading volume than an exchange like Gemini, and I guess I would say, you know, Binance is probably the prime example of this. So, how do you guys plan to compete with the likes of an exchange like Binance?

Gemini:

So, I think it’s a great point and a very true observation and we view this very much as a marathon event. We’re in the first or second mile, if that. Some people are going to sprint out the gate. I mean, you know, I could probably lead the New York Marathon for a step even though I’m not a marathoner, and so I think this is a long game that is very true and core to our values as a company. We often talk about, you know, we’re not building a unicorn. We’re building a centurion. We’re trying to build a company that lasts for 100 or more years.

If you look at some of the most established and trusted institutions out there, State Street being one of them, it’s a double centurion, whatever. I don’t know if there’s another term for that, but it’s over 200 years old and that’s what we’re playing for and so, look, if we could cut corners and go offshore and didn’t have to follow the rules we would probably have a lot more volume, too, but that’s not the game we’re playing for and we think that as more and more institutions and people come into this space they’re going to…they really will not interact with an unregulated offshore venue. They simply won’t and they simply can’t and so we think, you know, that’s long term we’ll be very competitive.

Gemini:

Yeah, our motto is we’re just trying to be the fastest tortoise in the race.

Laura Shin:

Okay, that’s a great motto. So, I also wanted to ask because you wrote in a recent blog post that your goal is to bring cryptocurrencies to the people and places that need it the most, but I couldn’t help but notice that your areas of operation are the U.S., the United Kingdom, Hong Kong, South Korea. These are all very developed countries with high-functioning financial services. So, how do you square that mission with what you’ve done so far?

Gemini:

Great question, so that’s kind of one of the unfortunate…I don’t know if it’s a tragedy of technology, but the places that need it the least get it the first. If you look at sort of the telecom and how that developed. We got cell phones in the developed world really quickly. Used them, but we had a lot of great other alternatives, landlines and all that stuff.

The developing world, you know, they got it later, but then they also had the benefit, or they have the benefit, of not having to lay all those copper lines and whatnot. They can sort of leapfrog into that next level of technology. So, that’s sort of where we are right now in many ways. People didn’t wake up, you know, in the U.S. and say man, like credit cards are so horrible. I wish there was a better payment system. Venmo and PayPal are just not cutting it.

Sure, like we have…we don’t, you know, there’s issues with them and we can do better but we’re not suffering from hyperinflation or the real problems of the economies in other parts of the world, but we’ll get there, and the Gemini dollar can get there right now and all you need is an internet connection. So, it’s definitely a long-term goal of our company. We believe that there will be, you know, there’s a value revolution going on right now.

It’s going to rearchitect the internet. We’ve all sort of thought about the decentralized web, web 3, what that looks like and getting, you know, banking the unbanked is a huge piece of that future and we are going to get there but we are probably…you know, it’s not going to happen right away, but that’s a goal.

Laura Shin:

And I also wanted to ask about your listing process. You guys have been even more conservative than Coinbase in terms of adding new assets and I didn’t know if part of that had to do with the regulation, so I was just curious. You know, what is the process for deciding which new coins to list and how does that affect, you know, how quickly you can roll things out because, like, I couldn’t help but notice that you launched Bitcoin Cash trading in December, but that was a month after the Bitcoin Cash hard fork, which I’m sure did not lend any more credibility or confidence in that cryptocurrency. So, I sort of assumed that maybe you had started the process to add Bitcoin Cash prior to the hard fork, but that maybe getting approval from the New York State Department of Financial Services may have held that up. So, can you describe the whole process for me?

Gemini:

Yeah, so we actually had approval for Bitcoin Cash prior to the fork and we decided as a team that we were going to wait the fork out rather than list and then deal with the fork aftermath, and a lot of that is just geared towards protecting our customers because if there isn’t replay protection or there’s some kind of funniness that you can’t model out, or protect against, or anticipate as is the case with a lot of these forks, there’s unfortunately not a ton of information and sometimes exchanges are like an afterthought.

People in the different communities are so focused on the philosophical differences of their different coins and their protocols and not about the realities of operating an exchange and trying to support it. So, we said you know what, we’re going to wait this out and let the dust settle. It probably cost us two months or maybe three months in terms of listing the coin. There’s no doubt lost revenue, but it just didn’t feel right putting it live with that risk hanging out there. So, we’re really conservative and I think, you know, as we’ve said before we’re just trying to be the fastest tortoise in the race. We’re not trying to be any faster than that.

Laura Shin:

But yeah, so like I don’t know what standards coins have to meet in order to be listed, but I just wondered. So, first of all what is that and then second did the hard fork kind of like, you know, I guess change your perception of whether or not Bitcoin Cash met that standard?

Gemini:

So, we are developing an internal rules. We haven’t publicly sourced them or published them yet because they are still in process. For each coin up to this point, it’s been a sort of a case by case situation. We look at the team, the use case, the proposition of the coin. Is it doing something unique or is it just another me too and is it truly, you know, solving an authentic problem that those are the general common-sense things that we look at and will it pass muster with regulators?

Obviously, we listed Zcash. We didn’t attempt to list Monero and we felt that Zcash was the privacy coin that we could get our regulators comfortable with. We are definitely looking at and thinking about a framework, but what we don’t want to do is publish a framework that we don’t follow or that we have to unpublish or amend. So, we’re being, again, super conservative.

I think you’ll see something from us over the coming year, but we’re not quite ready to go live and I should also point out we never listed Ethereum Classic and we just haven’t gotten comfortable with it and there was a 51 percent attack very recent.

Laura Shin:

Yes, yes. Super, that was maybe one of the more insane things I’ve seen on my coverage. So, one other thing I wanted to ask you was you guys did an AMA on Reddit and I couldn’t help but notice there was this one question that I think was asked more than once, that you guys didn’t answer, so I was going to ask it here. Why should users use Gemini when Coinbase Pro has cheaper fees?

Gemini:

It’s a good question. So, I think we are probably going to be updating our fee schedule in this quarter. I think we’ll be super competitive, but we are more competitive than Coinbase in a lot of regards in terms of fees. Our mobile app fees are more competitive. We don’t charge 4 percent to redeem your stablecoin. They charge, I think, 4 percent on the USDC. So, it’s not a correct assertion on the commenter.

Laura Shin:

All right and then the last thing I want to ask about is that you guys secured insurance coverage for the digital assets in your online hot wallet. So, what does that mean exactly? In what instances does the insurance apply and for how much?

Gemini:

So, we have coverage of the entire hot wallet. I don’t think we’ve disclosed the amount, but its significant and I think that it is the most of any crypto custodian and exchange on the market, and effectively there’s not an infinite amount of appetite among insurers. There’s sort of an amount of coverage that is out there, and I think we did a good job of impressing them, with the underwriters that is, with our cold storage system and our procedures and policies and protocols, so I think we achieved the highest level, at the highest aggregate amount.

Laura Shin:

And that applies if you guys are hacked or if there is, like, employee theft or something, but it doesn’t apply if I’ve lost my password or if my account was compromised. Is that correct?

Gemini:

It does not. So, if you were to have your credentials compromised it does not cover, sort of, your behavior.

Gemini:

But we have, we force two-factor authentication, so you’d kind of have to jump through some hoops on your end and make a lot of big mistakes to lose your credentials to a phisher, a phishing attack or a spear phishing attack. I’m not sure if it was clear before, but the insurance coverage covers the entirety of the assets that we hold on customers behalf in our hot wallet, and so if our hot wallet has an incident or is hacked, then it would be covered.

Laura Shin:

Okay. Actually, I do want to add one last question, which is you guys have been largely, if not completely, self-funded. Do you envision ever accepting outside capital for your business and also, just out of curiosity, how do Gemini employees feel about the lack of external capital raises and valuation milestones?

Gemini:

So, we’ve always thought about raising capital and we’ll continue to always think about it. It’s not something we’re…we’re not going to capital raise now. We’re not thinking about one anytime soon, but we always explore options and every option is sort of on the table, but just because we haven’t raised from, you know, Sand Hill Road VC, doesn’t mean that our employees don’t have equity value that is significant and we’re not really…we don’t play this, like, oh we’re chasing a valuation game.

We’re just building sustainable value in a great company and like Cameron mentioned, a company that lasts for over a hundred years, a centurion. Our opinion, everything else will fall into place. Equity value, people doing, getting rewarded handsomely for all of their efforts. That will come. You don’t have to raise money from like a third-party investor on Sand Hill Road and keep chasing valuation games for people to get the same result. So, that’s kind of our stance on it and a lot of companies raise money and that’s like this thing that they parade around, and it becomes, a lot of times it’s like the last good thing they do, and they run out of money.

Gemini:

Yeah, and I think that almost all of our core founding team, the 10 or first 10 to 15 people, are still with the company four plus years post and a lot of these people have moved well past the four year vesting date and so we have a ton of institutional knowledge and cultural carriers in the company who have seen it grow from, you know, a 10 person outfit to the 200 person outfit today, and you know the human body, I think, every seven years we have like a completely regenerated cells and yet somehow, you know, every cell in your body down to your bones is new and yet we retain our memory somehow.

I don’t know how that works, but Gemini, we have our corporate memory and history and we have a tremendous amount of senior leaders and early people. At a lot of the companies that have raised there was tremendous turnover and there’s not a lot of faces that have been there early on. I think that counts for something. It allows us to be really tight. We’re great at kind of communicating internally and understanding each other and being aligned and on the mission at hand.

Laura Shin:

All right. Well, we’ll check back in with you in a few years again. I guess with roughly the same interval. Maybe not as long as last time.

Gemini:

Hopefully sooner.

Laura Shin:

Yeah, maybe sooner. We’ll see. We’ll see. Well, it’s been so great having you. Where can people learn more about you and Gemini?

Gemini:

Gemini.com is a great starting point. We’ve also got a mobile app in the Play Store and the iOS Apple Store and then we’ve got a Medium blog where we write a lot of content and talk a lot about what we’re up to, how we think about the space, and of course your podcast every, you know, two years when we’re on it.

Laura Shin:

All right, great. Well, thanks so much for coming on Unchained.

Gemini:

Thanks for having us, Laura.

Gemini:

Thank you.

Laura Shin:

Thanks so much for joining us today. To learn more about Cameron, Tyler, and Gemini check out the show notes inside your podcast player. New episodes of Unchained come out every Tuesday. If you haven’t already, rate, review, and subscribe on Apple Podcasts. If you liked this episode, share it with your friends on Facebook, Twitter, or LinkedIn, and if you’re not yet subscribed to my other podcast, Unconfirmed, I highly recommend you check it out and subscribe now.

Unchained is produced by me, Laura Shin, with help from Raelene Gullapalli, Fractal Recording, Corin Faife, Jennie Josephson, and Daniel Nuss. Thanks for listening.