Custodian Can Freeze Accounts of Stablecoin Gemini Dollar

gemini dollar

Last week, the New York finance regulator announced it will approve two stablecoins that are linked to the U.S. dollar. One of the new coins is Gemini Dollar (GUSD), which was issued by cryptocurrency exchange Gemini that is run by the Winklevoss twins. A code review of the stablecoin, however, reveals that Gemini accounts can be “frozen” by the exchange and tokens can be converted into non-transferrable assets.

Conflict of Interest?

Behind the code review of Gemini Dollar was no other than Alex Lebed, who has been studying the opportunities and risks surrounding blockchain technology for years. Lebed, who is also behind rival stablecoin Stableunit, examined Gemini Dollar’s code. Ultimately he concluded that Gemini Trust could freeze the accounts of its investors while tokens could be converted into non-transferable assets.

As a result, Lebed claims that unlike his own Stableunit, which is decentralized, the Gemini Dollar has centralized features:

“Gemini USDG is a new centralized stablecoin (similar to tether) implemented as an ERC20 token on the Ethereum blockchain,” according to Lebed in the study.

Investor Risk

Lebed’s analysis was of Gemini Dollar’s codebase, which was created with Ethereum smart contracts. At the core of his analysis is the access of the custodian, which he said can “change the implementation of the token every 48 hours.” The custodian could also “create an infinite amount of tokens,” which if true places investors at risk. In addition, Gemini could suddenly decide at some point in the future, “you know what, sorry, we don’t want to change your tokens for dollars anymore,” according to Lebed.

Stablecoins are no stranger to controversy. Reddit members have also suggested that Tether, which is issued via the Omni Layer, could just as easily freeze accounts. The criticism here is that in light of the threat of a frozen account, stablecoins like Gemini Dollar are merely a database and not a “real” cryptocurrency like bitcoin.

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