Gemini Crypto: Zero Funds at Signature Bank
Crypto exchange Gemini has officially declared that it has neither its own nor its clients’ funds on deposit with the failed crypto bank Signature Bank.
1/ It is very sad to hear the news about Signature Bank. They have been incredible partners for Gemini and our industry for the better part of a decade.
We have zero customer funds and zero Gemini dollar (GUSD) funds at Signature Bank.
— Gemini (@Gemini) March 13, 2023
Signature Bank went bankrupt a few days ago, after Silicon Valley Bank went bankrupt.
While Silicon Valley Bank was mainly active in California (Gemini is in New York), Signature Bank was the bank for many crypto companies.
The relationship between the crypto exchange Gemini and Signature Bank
Headquartered in New York, where Gemini is also based, Signature Bank provided specific services for sectors such as commercial real estate, private equity, mortgage servicing and venture banking.
It was founded in 2001, which is long before the rise of cryptocurrencies, but by 2023, crypto-related assets had grown to account for 30% of deposits.
At the time of its closure, it had assets of $110 billion and deposits of $82 billion, making it the third-largest bank failure ever in the United States by face value.
Signature Bank entered the crypto sector in 2018, and by 2021 more than 16% of deposits now came from this sector. It also held part of Circle’s reserves for USDC.
Thanks to this boom, its market capitalization rose from $75 to $375 in just over a year, and at the time it was called a “cryptobank.”
According to the Financial Times, eight of the twelve largest cryptocurrency brokers had accounts at Signature Bank, and in 2019 the bank had also developed an open payment network called Signet that allowed real-time settlement of money transfers via blockchain. At the end of 2020, it already had 740 customers using Signet.
As such, it was not a bank created for crypto customers, but a traditional bank that had recently opened up to the crypto sector.
Gemini’s crypto reserves and the shutdown of Silvergate Bank
Instead, Gemini is one of the largest US crypto exchanges, although it has lost some market share in recent years.
For example, the largest US exchange, Coinbase, still has more than $2 billion in daily trading volume, while Gemini has plunged to $33 million.
The second major US crypto exchange now is Kraken, with $1.2 billion in daily trading volume. Binance US, for example, is just under a billion, and Gemini in this regard has now been overtaken even by smaller and unknown exchanges such as PointPay, WOO X, Felixo and many others.
The vast majority of trading on Gemini involves BTC and ETH, and is done in USDT and USDC. Everything else is marginal.
Despite this, its possible involvement with the failure of Signature Bank would certainly have dealt another blow to the crypto sector, thus the official statement served to prevent the spread of new panic.
It is worth noting that over time Gemini has specialized mainly in institutional-level crypto services aimed at large clients, so it is not so much trading, but mainly custody that could have caused major problems in case of lack of funds.
Also, Gemini has been suspected of being in crisis since October, and was recently accused first of lying to clients, and then of illegally selling unregistered securities.
GUSD: Gemini’s stablecoin
Gemini does not have its own token, but it has issued its own stablecoin, Gemini USD (GUSD).
When it issued it, it looked like it could challenge its two main rivals, the USDT and especially the USDC, and instead over time it turned out to be a very unsuccessful project.
Suffice it to mention that while it never really lost its link to the dollar, its market capitalization never managed to exceed $1 billion. From a peak of 866 million in November last year, it has since fallen to today’s 600 million.
For example, USDC capitalizes over 37 billion, and USDT as high as 74. GUSD’s market capitalization is currently lower even than that of the algorithmic stablecoin USDD, which has recently had serious problems losing its link to the dollar.
So everything indicates that Gemini is going through a difficult time.
Gemini and the failure of Signature Bank
If nothing else, at least it has had no problems related to the failure of Signature Bank.
In official statements, they admit that the bank has been a partner of theirs for most of the decade, but reveal that they no longer have any dollars on deposit with them.
To date, in fact, all of Gemini’s bank deposits, including those of the funds it holds on behalf of its clients, are with JPMorgan, Goldman Sachs and State Street Bank.
All of GUSD’s reserves are at State Street Bank, Goldman Sachs and Fidelity.
In its official communication, Gemini emphasizes that all customers’ funds and dollar reserves are 100% covered, and are therefore available for withdrawal at any time.
This did not apply, for example, to FTX, the second largest US crypto exchange after Coinbase, which went bankrupt in November.
To mark a different and more cautious stance, Gemini also states that it continues to actively monitor counterparty risk due to banking cooperation to prevent any impact on customers.
At this point, it suggests that they may have recently decided to stop using banking services offered by Signature Bank, possibly because they felt that the risks associated with this bank’s resilience were increasing.
