The Winklevoss-led Gemini exchange has had a long parade of releases this year. From formally instituting their legally-compliant stablecoin Gemini Dollar to trading Zcash (ZEC) on their platform alongside ETH and BTC, Gemini unveiled yet another announcement today: an insurance for policy for all cryptocurrencies traded and stored on the exchange.
That’s right, now you can worry no longer about a potential loss of funds over an exchange outage or hack when using Gemini. Just like a formal bank which ensures up to $250,000 per account as per FDIC rules, Gemini will be offering a similar level of security. This aligns Gemini with the security of more traditional finance and banks, a much-needed improvement in the cryptocurrency space.
In their press release, Gemini said that their new insurance policy would bring a flock of new investors to the platform who will feel better knowing their funds are always safe. The insurance-aspect of the exchange will be provided by the services firm Aon. This move confirms that not only does Gemini see itself as a top-tier exchange, but also wishes to be the go-to place where investors store their currencies. Thus, Gemini sees itself not only as an exchange, but also as a custodial service for cryptocurrencies.
Just like a bank, all dollar deposits into Gemini are held in one or more Omnibus Accounts. These accounts, stored in banks throughout the United States, all comply with the regulations set forth by the FDIC. This means that all USD deposits, in the case of an exchange hack, are protected. However, the new insurance policy does not currently cover any other currencies beside the dollar.
As Gemini mentions in their announcement, generally insurers are hesitant when it comes to cryptocurrencies to offer any support. This is because of the many high-profile hacks that have plagued the space for some time. Many of these hacks have resulted in massive, catastrophic losses and insurers oftentimes do not feel comfortable taking that level of risk. Sadly, this perception of high-risk has pushed the industry back from being its best. For example, because of this unfair perception, many crypto-related exchanges and their related custodians have been unable to either obtain insurance or found it too expensive because of the premium pricing.
Gemini, however, was able to pitch its case differently than the rest. This is because Gemini is a New York trust company and clearly in the forefront of legal compliance for cryptocurrency exchanges. Not only are they legally compliant, but they are compliant in a difficult, regulatory environment like New York State which says quite a bit about their rigor. In fact, their compliance with the New York State Department of Financial Services allowed them to create the tokenized ‘Gemini Dollar,’ a stablecoin which is pegged to $1. Such a legally-compliant stablecoin is the first of its kind, especially in the United States.
“People Want Security”
Ultimately, what people when when it comes to the cryptocurrency space is the same security and sometimes even ease of traditional finance. As Yusuf Hussain, the Head of Risk at Gemini makes clear:
“Educating our insurers not only allows us to provide such protections to our customers, but it also sets the expectation for consumer protection across the crypto industry.”
Interestingly enough, Gemini’s own stablecoin is also insured through the FDIC since it is backed by real dollars in their bank accounts. Perhaps, we should have expected that this same insurance policy would follow for the exchange more generally since they already have it approved for the Gemini Dollar.
Gemini is looking to position itself as the alternative to Coinbase which is the currently the dominant means of buying and storing cryptocurrency in the United States. In fact, Coinbase and its platform Coinbase Pro already both have an insurance policy as per FDIC expectations. This means that Gemini was merely adding on an extra layer of security that Coinbase already, frankly, has.
Now that their level of insurance and security are on par with one another, Gemini is likely looking to compete with Coinbase on equal footing. So we shouldn’t be surprised if Gemini has more surprise announcements in the wing ready to be made soon.