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What Is GUSD, What's It Used For & Its Pros and Cons

Updated: Aug 3rd, 2022
Kevin Groves
Kevin Groves
What Is GUSD, What's It Used For & Its Pros and Cons

Stablecoins are the biggest assets within the crypto ecosystem. They are pegged to the USD and offer a lot of value to customers. Since the UST downfall triggered the bear market in 2022, investors are looking for a good stablecoin to weather the storm of crypto volatility. The Gemini Dollar, GUSD, is one cryptocurrency. In this guide, we answer what is GUSD, explore how it works and the pros and cons of using it for trading crypto.

What is GUSD?

GUSD is a cryptocurrency stablecoin that is pegged to USD and is backed by Boston’s State Street bank. The stablecoin is insured via the FDIC deposit insurance program. GUSD or Gemini USD was launched in 2018 after Gemini, one of the world’s leading cryptocurrency exchanges, got approval from the New York Department of Financial Services. The cryptocurrency exchange has claimed that GUSD is the world’s most transparent and the only regulated stablecoin.

According to the Winklevoss Brothers, founders of Gemini, GUSD is backed by fiat assets and has the potential to bridge the gap between crypto and the traditional financial sectors. Simply put, it is not an algorithmic stablecoin. Also, GUSD has no hard cap. That is, the developers have not set a circulation schedule or limited the supply.

What Can GUSD Be Used For?

Investors must remember that stablecoins are intermediary assets. GUSD is no different. The Gemini USD allows users to buy other cryptocurrencies from trading platforms and crypto exchanges safely and conveniently. That said, the most common crypto assets that can be purchased using GUSD are USDT, BTC, and ETH. It can also be used to earn a yield by storing in interest-earning platforms or providing liquidity in pools within the DeFi space. Some of the applications that can use GUSD are shown below:

GUSD use cases and applicationsGUSD use cases and applications

Here are the steps to use GUSD:

  1. Buy GUSD from the cryptocurrency exchange: There is a wide array of cryptocurrency exchanges that have listed GUSD. However, it is recommended that users invest in GUSD on Gemini. Gemini is GUSD’s primary crypto trading platform, allowing investors to trade GUSD without paying fees.
  2. Swapping GUSD for other cryptos: The investor can then visit suitable cryptocurrency exchanges to swap GUSD for BTC, ETH, or USDT.

When the registered users convert their USD into Gemini Dollars and transfer them to their Ethereum wallet addresses, Gemini Adjusts the GUSD holding depending upon the number of tokens in circulation.

What Are The Pros and Cons of GUSD?

Fiat-backed stablecoins are considered the most stable crypto assets, even in the volatile market. That said, these crypto assets are also affected by the movements of the fiat market. Thus, investors must weigh all the pros and cons before investing in GUSD.

How Does GUSD Work?

Whenever customers withdraw Gemini dollars from the Gemini exchange, new GUSD tokens are created. The stablecoins are then destroyed whenever customer redeems them or put them back in their Gemini accounts. This section discusses the various aspects of the GUSD network.

Security

GUSD was created under strict controls allowing Gemini LLC to perform upgrades whenever needed. Gemini offers to resolve the following challenges using its GUSD tokens:

  1. Resolving the vulnerabilities of the existing stablecoin ecosystem
  2. Adding new features to the network
  3. Improving the operational efficiency of the system
  4. And controlling the flow of GUSD during emergency conditions. That is, pausing, blocking, and even reversing it in case of a security incident.

To accomplish these tasks, the Gemini uses layers of smart contracts on GUSD. There are three smart layers:

  1. Proxy lawyer: The proxy layer creates and transfers coins. It also establishes a mechanism to stop the issuance of the GUSD in case of a security incident. As a governance layer, the proxy layer specifies the events that are allowed to take place in the blockchain.
  2. IMPL Layer: IMPL layer is home to the data and logic of the smart contracts. It stores the logic using a GUSD that is created, transferred and burned out of circulation. While it is similar to the ERC-20’s layer, the difference here is that it must receive the proxy layer’s permission before performing any talk.
  3. Store Layer: The store is the final layer of the GUSD ecosystem. It is a ledger mapping the balances to their owners. It is also the layer where transactions become available for public viewing.

These three layers are also responsible for securing the Gemini Dollar Network.

Limiting the Supply

While Gemini creates a new GUSD after withdrawal, there are limits. For each GUSD token, there should be 1 USD in reserve. If the number of GUSD exceeds USD, it will depeg. Thus, to maintain the peg and limit the supply, GUSD implements a custodian system.

Printslimiter is the custodian system in place for this purpose. Built into the IMPK layer, it sets the hard cap on the number of GUSD to create. To determine the limit, it implements the method of checks and balances. Through that, it decides whether to create new tokens whenever there is a change in the overall supply. Thus, to increase the supply, it relies on the approval from an offline keyset, and to decrease the supply, it gets approval from an online custodian.

How To invest in GUSD?

At the time of writing, GUSD ranks as the 11th biggest stablecoin in the market by market cap. Here are the different ways people can invest in GUSD.

  1. Centralized Exchanges: Centralized exchanges are the most reliable options for buying cryptocurrencies such as BTC and stablecoins such as GUSD. By matching buyers and sellers using a central book, these platforms make the transaction process simpler. Furthermore, since the authorities regulate the centralized exchanges, there is an added layer of security that investors would appreciate. Thankfully, GUSD is on most leading exchanges such as Gemini, Bitstamp, BitMart, CEX.io, and Curve Finance.
  2. Brokers: Investors that want to engage with institutions to buy stablecoins can always rely on brokers. Brokers are brokerage firms that specialize in selling cryptocurrencies and fiat. Investing in cryptocurrencies through brokers is easy because of the intuitive UI provided. However, the cost of investing is higher than a centralized exchange typically.
  3. Wallets: Security-conscious users can use supported crypto wallets to buy GUSD. Users first have to install the GeminiDollar Wallet app. Afterward, they can use the wallet directly to buy, sell, and store GUSD.

Where to Buy GUSD?

A wide array of cryptocurrency exchanges offers GUSD. Thankfully, most crypto trading platforms selling GUSD are regulated. Despise that, investors must first consider the following factors before choosing the place to buy GUSD:

  1. Deposit methods: Cryptocurrency exchanges offer payment methods such as crypto transfer, bank transfer, credit or debit card, PayPal, Neteller, Skrill, and more.
  2. Security: Investors must consider the security measures of the cryptocurrency exchange before choosing. Such measures include two-factor authentication, encryption, and a presence of an insurance plan.
  3. Ease of use: Different crypto trading platforms offer different UI with varying degrees of complexity. However, novice investors must go through the tutorials before starting the trading process.

Based on these factors, here are examples of the top cryptocurrency exchanges to buy GUSD that have the highest trading volumes at the time of writing:

  1. Gemini: Overall, the best cryptocurrency exchange to buy GUSD.
  2. EXMO: A crypto exchange based in the UK that is ideal for veteran investors
  3. OKX: Offers a wide array of crypto assets to trade with GUSD
  4. CEX.IO: Good spot trading platforms for various cryptos

Interested users must check out our full reviews for each platform before choosing.

Is Gemini Dollar a Good Investment?

While most stablecoins are backed by fiat currencies, like GUSD, it is critical to realize that they are cryptocurrencies and, thus, are impacted by the volatility of the other coins in the market. The impact is more profound during the bear phase. That said, GUSD is one of the most popular stablecoins in the market - having been able to stay pegged for most of its run.

Are There Any Risks Holding GUSD?

When it comes to risks of investing in Gemini Dollar, there are two to keep in mind:

  1. The Gemini Earn Program: Investors can lock up their GUSD to earn interest on crypto holdings on the exchange. It can be risky because, under suboptimal market conditions, the stored GUSD can be lost.
  2. Limits to the withdrawal: Depending upon the exchange, there are limits to how much GUSD investors can withdraw from their accounts.
  3. Stablecoin value can fluctuate: Soon after launch, this stablecoin rose above the peg, reaching $1.100. While it has not been able to perform the same feat since then, hope remains for this fiat-backed stablecoin. At the end of 2021, GUSD depegged from USD for a month - creating fear among the investors. It was only after April 2022 that this stablecoin could find stable ground and continues to stay pegged to the USD.
Graph of the GUSD value against 1 USDGraph of the GUSD value against 1 USDGraph of the GUSD value against 1 USD. Source: Coinmarketcap.com

Overall, GUSD is a relatively safe stablecoin to hold that can be used to maintain its value against US Dollars. However, investors must be aware of the market conditions and store GUSD safely if holding for longer-term.

What are the Best Wallets to store GUSD?

Investors have many options for storing their GUSD. They can either rely on the exchange’s security protocols to keep their stablecoin safe or move the GUSD to their personal wallets. There are two types of wallets to choose from:

  1. Hot wallets: These are software wallets that come as browser extensions, standalone applications, or mobile apps. Hot wallets are generally the accounts of the cryptocurrency exchange. The term - hot - comes from the fact that they are consistently connected to the internet. They are convenient and simple to use. However, the security of these wallets is up to the cryptocurrency exchange. And while trading platforms such as Gemini have implemented many security measures, hacking is always a threat. That said, a DEX wallet, like the atomic wallet, has proven to be more secure than most CEX wallets.
  2. Cold Wallets: Cold Wallets are hardware wallets disconnected from the internet. They are the best storage units for GUSD due to their high security. The Ledger Nano X is a good hardware wallet for GUSD.

Frequently Asked Questions

Investors mostly use GUSD as an intermediary asset to buy cryptocurrencies such as BTC, USDT, and ETH. Other use cases include converting other crypto assets into GUSD to hedge against market downtrends and preserve the value of their crypto portfolio against volatility.

GUSD is a USD-pegged stablecoin that’s audited monthly by BPM LM. Furthermore, Gemini secures the customer assets inside FDIC-insured bank accounts. Based on these factors, investors can consider GUSD a secure stablecoin.

The GUSD is a stablecoin that is pegged 1:1 to the US dollar. However, depending on the market conditions, the value of a stablecoin can be fractionally more or less than the USD. That said, GUSD is one of the most stable stablecoins in the market that has managed to stay pegged even during the bear market.

Yes, according to the website, GUSD is insured by the FDIC deposit insurance program. It allows Gemini to offer concessions to the investors if there is a hacking event.

Conclusion

Stablecoins tend to remain stable, even during the bearish phase. Being a fiat-backed stablecoin, its foundations are tangible - making it a good hedge against market volatility as opposed to an investment. However, investors must weigh all the pros and cons before buying and holding the tokens.

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Kevin GrovesKevin GrovesKevin Groves

Kevin started in the cryptocurrency space in 2016 and began investing in Bitcoin before exclusively trading digital currencies on various brokers, exchanges and trading platforms. In 2019, he started HedgewithCrypto to publish informative guides about Bitcoin and share his experiences with using a variety of crypto exchanges around the world.

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