Gemini cryptocurrency exchange has closed accounts on their platform connected to two over-the-counter trading (OTC) desks. According to the OTC operators, the Gemini accounts were closed abruptly without explanation after they attempted to redeem GUSD, Gemini’s stablecoin.
Affected OTC operators reveal ban anonymously for fear of damages
The OTC desk operators made the claims against Gemini under anonymous conditions as they fear reputational damage. They also made some revelation about the business practices within the stablecoin market, which has been growing over the past few months.
Namely, CoinDesk reported that the account of an OTC trader in South America was closed after informing Gemini of his plans to redeem millions of dollars of GUSD.
Gemini issued a statement to the trader, a review “determined [the] account must be closed.” The exchange added that it was not able to elaborate on the specifics of the decision.
In a bid to capture a large share of the stablecoin market, Gemini issued a 1 percent discount on GUSD last year to OTC desks and market makers. The traders were made to comply with restrictions that would stop them from immediately redeeming the stablecoin.
The OTC trader in South America mentioned that Gemini proposed a discount deal to his firm, offering him the ability to purchase tokens at below market value. The company, however, declined because the desk wanted to purchase the GUSD coin and transfer it to fiat afterward.
The desk trader later purchased the GUSD from its own network, but received a warning from Gemini staff that redeeming millions of dollars would harm the GUSD.
In the second instance, a US-based OTC trader revealed to CoinDesk that his Gemini account was closed immediately after redeeming millions of GUSD. The trader believes this is a move by Gemini to strengthen its status on CoinMarketCap.
To prove his point, the trader provided emails disclosing how Gemini closed the account without offering any explanation and just days after the desk redeemed its GUSD coins. The issues have become public knowledge, with an OTC desk operator telling CoinDesk he is reluctant to redeem the stablecoin for fear of account closure.
“So many players are unable to redeem, even very, very big OTC desks. Having an account doesn’t guarantee redeemability,” said the trader.
Gemini prefers institutional investors
It is not surprising that crypto traders are becoming frustrated with Gemini’s services, as the exchange has made its preference clear in favor of institutional Wall Street traders. The exchange sponsored ads promoting itself as a regulated cryptocurrency exchange.
Gemini responded to inquiries about such claims, emphasizing that it is a New York trust company, and as a result of that, some potential customers will be unable or unwilling to pass their robust compliant program. “This is a feature, not a bug, and what makes Gemini different. We understand this may frustrate some, but this is necessary to build trust in the future of money,” the exchange added.
Gemini told CoinDesk that the company collected over 133 million USD worth of GUSD, which is over half the supply created so far. Gemini added that clients are allowed to redeem up to 40 million USD worth of GUSD at a time.
A representative from a leading trading firm who uses Gemini to trade and redeem GUSD revealed that the criticism by OTC traders is most likely influenced by competition and not lack of utility.
“They [Gemini] are not loved like other people, so I think that some of that is being transferred onto their product,” the trader stated. That might not be true, with some active companies in the market reporting that the level of restrictions placed on Gemini’s accounts is above industry norms.
A third OTC desk trader told CoinDesk that it was denied access to its Gemini account for offering a competing money-services business, even though it believes it follows the same compliance rules as regional competitors trading on Gemini.
No huge demand for GUSD at the moment
OTC desks are competing with crypto exchanges like Gemini. However, there is no huge demand for GUSD among professional traders at the moment. Five unaffiliated OTC desks told CoinDesk that traders within their network do not demand the stablecoin. The high percentage of GUSD trading activity comes from exchanges that OTC desks do not use.
An anonymous OTC trader who has worked with GUSD stated that “The trading volume is dictated by [Gemini’s] actions and has nothing to do with the market, per se.”
Furthermore, data pulled from CoinMarketCap showed OEX, Hotbit, Bitrue, and Fatbtc are the exchanges with the highest GUSD trading volume. None of these exchanges is directly associated with Gemini.
The problem with GUSD isn’t inherent to other heavily regulated stablecoins. Luis Buenaventura, founder of BloomX OTC desk, based in the Philippines told CoinDesk that there are fewer liquidity issues related to PAX, Paxos’s dollar-pegged stablecoin. Buenaventura, however, concluded that his partners still prefer to use the less heavily regulated stablecoin Tether due to limited liquidity amongst other stablecoins.