Is GUSD safe to use?

Dominic Harper // January 9 // 0 Comments

Key Takeaways

GUSD is an asset-backed stablecoin launched by Gemini, a popular cryptocurrency exchange, in 2018. It is pegged to the American dollar and its reserves are kept in FDIC-insured bank accounts, providing reliability and trustworthiness.
GUSD offers various use cases within the Gemini ecosystem, including seamless payments with Gemini Pay, staking for high returns, and liquidity provision in DeFi market makers.
The technology behind GUSD is based on the Ethereum network, utilizing three smart contract layers for managing on-chain behaviors, asset creation and destruction, and public balance calculations.
GUSD ensures security through cold storage, the use of hardware security modules (HSMs), multi-signature security, and time locking to identify and restrict potentially dangerous activities.

The uncertainty, scams, and collapses of significant projects in the crypto industry have grabbed the headlines recently. The crash of Luna and its stablecoin, UST, proved that even the strongest and relatively stable projects could fall if things are not managed right.

To counter this problem, you might want to explore transparent alternatives to fiat-backed altcoins such as GUSD. But is GUSD safe to use as a stablecoin? Let’s find out!

What is GUSD, and Who Made it?

GUSD is an asset-backed stablecoin pegged to the American dollar. The asset was launched back in 2018 by popular cryptocurrency exchange Gemini. The exchange claimed their stablecoin was the only one with proper regulatory systems, making it a reliable and trustworthy crypto project. The asset guarantees that the reserved US dollars for each GUSD are kept in FDIC-insured bank accounts. GUSD reserves are also examined and maintained by a private accounting company on a daily basis.

GUSD has several use cases that one can benefit from. For starters, GUSD comes with the entire ecosystem created by the Gemini crypto exchange. You can use GUSD with Gemini Pay for seamless payments worldwide. You can stake your GUSD assets and earn high returns over a period. You can also use your assets in liquidity pools or different DeFi market makers to provide liquidity.

Gemini was founded by the brothers Tyler and Cameron Winklevoss. The platform was launched back in 2014 with essential features like buying, selling, and trading cryptocurrencies. The cryptocurrency exchange released GUSD in 2018 after getting clearance from NYDFS (New York Department of Financial Services).

The Technology Behind GUSD

GUSD is an ERC-20 token based on the Ethereum network, so anyone can access its smart contracts and have full transparency. Unlike other stablecoins, Gemini manages GUSD via three different smart contract layers that are designed to perform distinct duties. Take a look below to find out how the smart contract layers of GUSD work:

The Proximity Layer keeps the on-chain behaviors in check. It evaluates which transfers and generations are permissible on the blockchain and which ones should be restricted, depending on the scenario.
The Implicit Layer is in charge of all the data carried by a smart contract. Aside from transferring tokens from one address to another, it is also responsible for the creation and destruction of the assets. This process ensures that the number of circulating GUSD assets in the market is equal to the available US dollars in the reserves. To cross-check facts, a third-party auditing company is assigned to authorize the supply of the tokens.
The Storage Layer is responsible for calculating and making the balances on the blockchain public.

How Does GUSD's Security Work?

Cold storage is one of the best ways to protect users’ funds and assets. Gemini uses cold storage for GUSD for storing all the keys offline, making them inaccessible through the internet.

Use of HSMs: Gemini uses hardware security modules to store, create, and manage keys generated on the network.

Multi-signature security: Any sort of transaction on the network requires at least two different signers or keys. This saves the users from unauthorized breaching or hacking attempts.

Attack identification: With time locking, Gemini identifies dangerous activities and restricts them beforehand prior to execution.

Unique features of GUSD

Compliance with governmental regulations: Many crypto exchanges and projects do not have any sort of legal documents, compliances, and regulatory approvals. GUSD is a stable asset that adheres to all the regulatory compliances of New York finance laws. The assets or the money of the users are insured and stored in a bank and guaranteed by the US government.
Proven record, social presence, and trust: Gemini has been in business for almost a decade now. They have gained the trust of thousands of high-volume traders and are growing every year with their ecosystem.
Licensed and qualified custodians: Most of the financial entities in the US are obliged to have licensed and qualified custodians. Gemini has custodians who audit all the things happening on the network and keep it stable and secure.
The ecosystem: With GUSD, you can yield high returns, pay anyone throughout the world, provide liquidity, join pools, and benefit much more.

Conclusion

Overall, GUSD can be considered a very safe asset to use. It is government-regulated and has excellent security layers to safeguard users’ assets. However, with its limited number of trading instruments, GUSD might seem quite restrictive to traders with diversified portfolios. Nevertheless, it is still a good choice for beginners or users who prefer safety over diversity.

Frequently Asked Questions

How secure is GUSD?

GUSD is a US-government-backed stable asset that complies with all the regulatory requirements and laws. Gemini also ensures the safety of GUSD through their security layers and advanced protection systems.

Is GUSD backed by USD?

Yes. Every GUSD has its physical reserve in FDIC-insured bank accounts in the US. The reserves are also regulated and managed by a private accounting company to ensure the circulation of the coins and the available reserves.

Is GUSD a good investment?

Although you cannot profit from GUSD through its value as it is a stablecoin, there are some other ways you can earn through GUSD. You can stake GUSD on supported crypto platforms and earn interest. Moreover, you can also provide liquidity and join pools to earn from your GUSD assets.

About the Author: Dominic Harper

Dominic has a background in finance and is passionate about cryptocurrency, blockchain technology and NFTs. He has been investing in crypto since 2017, and is excited about the potential for innovation and creative uses for NFTs in the near future.