Crypto exchange Gemini offered over-the-counter trading platforms a 2 percent discount on their stablecoin Gemini USD (GUSD). This meant that a token with the value of one dollar, could be bought for 98 cent. According to crypto weblog The Block Crypto this allowed Gemini to gain an upper hand against its competition. According to critics this form of trading, which is not accessible or known to the general public, is illegal.
It wouldn’t be the first time that a stablecoin is being offered at a discount, but it’s something that surely raises some eyebrows. Twitter user Bitfinex’ed – who systematically criticizes crypto exchange Bitfinex and the related Tether dollar-pegged token – points out that when buying bitcoins investors get a similar discount if they use USDT for the investment.
Traders spotted this opportunity and bought GUSD to trade it for another dollar-pegged coin called Paxos (PAX). This caused major problems for Paxos, as traders created dozens of accounts to surpass the $10.000 transaction limit on the Huobi crypto exchange. According to Paxos CEO Chad Cascarilla people would make ‘as many as 30 accounts in the same day’.
Paxos made sure they shut down accounts who are showing this type of trading behavior, but in the end ordinary retail traders are the victims. They pay full price for something ‘the elite’ can buy with a two percent discount. It’s a type of market behavior that reminds of the traditional banking system, where new account holders get extra money when opening an account or depositing a certain amount.
Keep in mind, the difference between $1.00 and $0.98 is very small, but when we’re talking about $1.000.000 and $980.000, it’s suddenly twenty thousand dollars! Do this on five, ten or the thirty accounts mentioned by Cascarilla, and we’re talking about 600 thousand dollars profit per day.
This time it’s Gemini USD (GUSD) that got caught in some bad PR. The timing for this bad news momentum is remarkable, because the Winklevoss twins just started to promote their Gemini exchange on billboards on the street.
Currently Tether (USDT) is still the biggest stablecoin on the market with a $1.9 billion market cap. Coinbase’s USDC follows with $293 million, while TrueUSD is just behind with $208 million. Paxos (PAX) is in fourth place with $132 million, having a decent lead on GUSD which has a $90 million market cap. DAI is in sixth place with $69 million, while EURS is seventh with $35 million.
Also published on Medium.