Winklevoss Twins Say Stablecoins Are Still Missing Their "Facebook Moment"
Tyler and Cameron Winklevoss of the Gemini crypto exchange say in an interview with The Defiant the stablecoin race hasn't started yet.
Hello Defiers! Earlier this week Tyler and Cameron Winklevoss, CEO and president of the Gemini exchange, respectively, sat to chat with The Defiant about everything from crypto in the pandemic, to Libra and stablecoins, to DeFi and their ETH holdings. The transcript and podcast link are below.
We all know the famous twins: Olympic athletes, their legal fight over the origins of Facebook, their reinvention into crypto entrepreneurs, founding one of the most successful exchanges in the space, and amassing enough wealth to become Bitcoin billionaires, which is also the title of a book about them.
Tyler and Cameron Winklevoss are playing the long game. While competitors rush to list the latest token and engage in dubious schemes to boost volume, they’ve taken a more conservative approach with their exchange Gemini, and with their stablecoin, the Gemini Dollar. They’re able to shake off lower volumes than some because they’re not sprinting at the start of the marathon. They want to move at the pace of compliance and regulation — Gemini is a New York trust company one of the few exchanges to operate under the state’s BitLicense.
Image source: Twitter
Besides, they say, the stablecoin race hasn’t really started yet. They’d rather see greater adoption when there’s finally a crypto app that breaks into the mainstream and needs a stablecoin for payments, than compete with coins inflating their balance sheets.
The twins said it may very well be that Facebook’s stablecoin Libra will be the global, digital means of exchange, and if that’s the case, they’d be happy to welcome it on Gemini —they’ve put all “past beef” behind, and are more interested in advancing the crypto revolution.
The twins said governments’ and central banks’ response to the pandemic is driving a new wave of adoption into crypto, from people who are realizing the current system is broken and are seeking an alternative.
They see promise in DeFi and consider integrating with protocols so that their exchange can offer more than just buy, sell, store. It’s time to start actually using crypto, they say, and that includes lending and staking. They consider decentralizing part of their stack, and even creating a Gemini Dex, though those plans sound to be for farther out in the future.
And as for their ether holdings? The Bitcoin billionaires said they their ETH holdings are “sizable” and “in the same galaxy” as their BTC holdings.
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Camila Russo: I want to get your impressions of how crypto has reacted in this pandemic and what is looking to be the greatest economic crisis since the Great Depression. We've seen exchanges report an increase in volume and activity, and I'm wondering if that's also been the case for Gemini.
Cameron Winklevoss: We've definitely seen an increase in interest and activity. Obviously in March there was a big sell off, so there's a period of time where every asset was sort of going down and people were trying to just stay above water. But I think now that the dust is settling a little bit more the Bitcoin story around a digital gold store of value, safe haven and basically protection against what a lot of people think will be inflation from the money printing, that's driving a lot of interest. And we've seen actually the Bitcoin price has recovered quite a bit since the pre pandemic. I think the halvening has also created a lot of interest because people, even outside Bitcoin and crypto, have been saying, What is this thing? What does this mean? And then they start to understand that the money supply and the schedule is deterministic. And so I think that's drawing people in. So I think overall we have seen an increase level in people looking, especially for Bitcoin.
CR: Can you give me an idea in numbers, like what was percentage increase compared to the same period last year or something to better gauge what the real impact has been of this crisis?
Tyler Winklevoss: Yeah, I don't have the numbers off the top of my head, but our APIs, are public. But I think if I remember correctly, May of last year there was some interesting volatility in price action and Bitcoin was around 5,000. We were kind of at the heart of crypto winter and then all of a sudden the price started creeping up a bit and people got excited and that was kind of short-lived until maybe June of last year. And then we were kind of in, again, crypto winter until the pandemic. Bitcoin was obviously hurt in the beginning, but there was a lot of volatility which was good for exchanges. But as Cameron mentioned, when the dust settled and people saw all this money printing, the deficit spending, the debt ballooning across the world, and then all of a sudden Bitcoin's supply schedule is cutting in half during the halving, that's in stark contrast to all the other fiat regimes and governments and people are looking at the current system and saying, Hey, this thing —excuse my French— is kind of f*cked.
“People are looking at the current system and saying, Hey, this thing —excuse my French— is kind of f*cked.”
And we've been pressing the turbo button for the last decade. Running a deficit, ballooning debts in a bull market with no war, or no major war at least in the US, which is the exact opposite of what you want to do. You want to keep your powder dry, spend less, take in more revenue, so you're prepared for when the pandemic comes. We did everything we shouldn't have done. And what do we have to do? We have to double down again to get through it. And it's sort of like, this chronic drug addict that just has to keep going for more, for a bigger dose, bigger dose, (getting) more hooked. And how does that end? It usually ends in rehab or, or worse.
CW: Bitcoin's rehab.
TW: The Genesis block inscription in 2009 was the '08 crisis and then the inscription in the one before this halvening is all the money printing. So it continues and it can't end well if we don't turn it around. The only problem is turning it around isn't easy, especially during a pandemic. So there aren’t many great options for fiat regimes. Even the best option is pretty bad. People are seeing that and they're saying, What's the alternative? And they've heard about this thing, Bitcoin, with fixed supply and its supply schedule is cutting in half and it's predictable. It's deterministic, it's transparent. No one can change it. I’m of loving the predictability and the math of that system versus this other one that's very Wizard of Oz, like, who's the man behind the curtain? And so for a lot of people, that's been the catalyst of, I'm going to try this other thing out because this current system I think is about ready to melt down.
CR: And are your main clients, I understand they're larger volume traders, more enterprise leaning, is that right?
CW: No, it's actually we have customers across the spectrum from retail individuals to institutions and programmatic traders and market makers. We have the Gemini mobile app is a very sort of retail-focused individual focused product. Super easy. The the goal is to be simple, accessible, and secure. So I think that there's perhaps a perception in the market that Gemini is more of an institutional focused platform. And it's actually not the case. We're very much focused on the entire market. And we have tools for individuals. And we also have tools for traders and companies that need more sophisticated stuff.
CR: Okay. And the reason I was asking was I'm wondering whether the kinds of questions that you're getting from institutional clients right now, are they different from what you've seen in the past two to four years? I mean, driven by the same kind of catalyst that we were talking about before. Are you seeing you maybe institutions that hadn't looked at Bitcoin before come to you and express their interest for the first time?
TW: Yeah, I mean, 2017 was really interesting because a lot of the people we were trying to get meetings with for so long and had been sort of closing the door or not even opening it, now they were banging down our door and they were obviously asking about Bitcoin, but also about all of these other crypto projects and the questions were more FOMO-based. Like, what's happening? Have you heard about this new thing, this project and this ICO. And it wasn't a lot of quality, it was like frenzy and FOMO and sort of fear-based anxiety of missing out. This time around it's much more like, Hey, I'm starting to get the Bitcoin gold framework story. I believe Bitcoin is a better gold or has gold qualities.
It has the qualities that make gold valuable. And in the current climate, I see this as a great sort of vaccine to the disease of money printing. So 2017 was like, have you heard of this ICO? It was like the ICO craze and that's great because a lot of people came into crypto, but it's also concerning because a lot of people can get burned and it just doesn't feel as real. This time around, it's a more of a Bitcoin-centric conversation and people really buying into the Bitcoin is gold or better than gold story, and trying to find a hedge to all of the potential hyperinflation that's going to be coming in fiat regimes, much how gold was a good hedge to the inflation of the 1970s. And that was what Paul Tudor Jones mentioned publicly. You know, he made the gold trade back in the seventies and today Bitcoin reminds him of the way to hedge out to the current economic climate right now.
CR: So you're seeing maybe this crisis leads to people looking at Bitcoin and crypto more for their actual fundamentals than some temporary frenzy that's going on with with price action.
TW: I think that's fair. When sophisticated players come and ask you about these ICOs because they missed bitcoin, they missed ether and then they're like looking at I don't know, the Telegram ICO or something that's raising capital, like billions of dollars, and the investment minimum is like $20 million and very sophisticated people, but not in crypto are asking you about it, that's very scary and different and it's not really fundamental bases. Versus now people being like, I actually believe in Bitcoin. I understand what makes Bitcoin, Bitcoin. I believe in that technology, how can I get some? And my answer is always, of course come to Gemini, we can help you. So it's not even like we're not even selling them on it. They're already sold on it. It's just how do I get involved? How to engage, how do I custody this thing without getting burned? You know, because everyone's read about the hackings and whatever. So it's a narrow conversation, but it's more real and grounded in fundamentals and it makes rational sense as opposed to, you know, the FOMO conversation.
Bitcoin Paved Way for DeFi
CR: That's encouraging. So I want to get your opinions on DeFi. You know, I saw obviously that you recently listed all these Ethereum based tokens, some very related to DeFi with Dai and Link. And it's been the biggest trend happening on Ethereum for the past year or so. It seems like it's so different from the space that you've traditionally dealt with, which is very much the regulated crypto side of things. And DeFi is just very out there, trying things, breaking things, not regulated at all and in fact, moving in the opposite direction, decentralizing everything. So I'm really interested in your views on this space.
CW: Happy to talk about that. When we first found Bitcoin in 2012, it was a Wild West space. There was no regulation. In fact, most regulators probably had no idea it existed. If you went to them and started talking about virtual currency or crypto they'd think you're speaking a foreign language or something. So it was an interesting time. And there was a lot of sort of experimentation and innovation and iteration. And then we kind of realized that, or decided that, in order to mainstream Bitcoin, we have to bring thoughtful regulation. Otherwise it's not going to go mainstream and people are going to get hurt. And we saw that firsthand with Mt. Gox. So I think that, you know, in the early parts of technology, there's perhaps an iterative phase and then the better experiences come along that are safer and more user friendly.
And that was a lot of the ethos behind Gemini. It was building trust in this new asset class. First earning it, which takes time a lot of time, and then maintaining it with your customers. We're only five years into the Gemini adventure. But it's a very short amount of period of time in the scheme of things. I think DeFi is a new vista, a new type of system for which Bitcoin paved the way, it was sort of the blueprint for decentralization. Like, this is what's possible. You can take something that's centralized and make it decentral. Bitcoin was the starting point. We spent a lot of time where the past couple of years trying to build in trust into that new system.
And we're very excited about DeFi and that system. But it's earlier and so it's harder to say how necessarily it will evolve, but I think the first step is creating a safe way for people to get into that system through Dai, for example, which is a fundamental building block. So offering Dai to our customers was important. Now what they do with it of course, up to them. They may use it in DeFi, they may use it somewhere else. But that's kind of the first step. DeFi is a very interesting space and it kind of speaks to our general vision around crypto. Crypto offers greater choice, independence and opportunity. That's what draws us to crypto. And that's what's so exciting about it. You know, Bitcoin gives you this alternative. If you're looking at the fiat systems and fiat regimes and you're really concerned you can start going into Bitcoin, this other system. If you don't have access to US markets maybe DeFi is an opportunity for you. So yeah, we're very excited about it and we'll look to continue to support projects that are in the DeFi ecosystem.
“DeFi is a very interesting space and it kind of speaks to our general vision around crypto. Crypto offers greater choice, independence and opportunity. That's what draws us to crypto. And that's what's so exciting about it.”
Potential Gemini Dex
TW: We're very much a centralized exchange right now technologically. Because DeFi couldn't do some of the volumes that a lot of our customers are used to. Just the engineering trade offs of de-centralizing an exchange versus centralizing are very different. So the liquidity, the volume, all of that stuff is harder to do. I don't think the technology is quite there. When you think of like CryptoKitties, the success of CryptoKitties, basically DDoSing the Ethereum blockchain, try putting through high-frequency traders, market-makers, billions of dollars of trading volume through a DeFi exchange –the technology would just fall over. So just because we started here doesn't mean as technology gets better, some parts of our stack, of the Gemini stack, like the settlement or the exchange, couldn't move to being more decentralized. Or maybe there's a future where we have like, Hey, if you want to be on the centralized stack and trade, we have this product here. But if you really want to go like non-custodial and decentralized, we've got this other exchange product over there.
And you have to remember, to connect the main land of finance to this new technology, some of them will require knowing their counterparty. So JPMorgan may not trade on an exchange that isn't centralized and regulated and they know who it is. Just like for a stablecoin, they may be more attracted to the Gemini Dollar, which is essentially an issued stablecoin that can be used in DeFi, but it's issued by a company that's regulated by the New York department of financial services. They may want to do business with that stablecoin, while Dai is way too exotic. They appreciate it, they understand it. But from a compliance, legal, regulatory standpoint, they actually can't touch it even though they think it's fantastic.
So it's really important as a community for us to have a couple of different options. There's some people who won't touch the Gemini dollar, it's not for them. But there's such a spectrum of customers and what their needs are and we have to meet them and it can't be done by only one stack or one piece of the spectrum. It may be a hybrid and maybe fully centralized, maybe fully decentralized. And I'm just very open to those possibilities and the fact that it's just not going to be a one size fit all.
CR: Super interesting to hear, we might see a Gemini DEX in the future. As you're looking at this possibility, have you looked at Layer 2 solutions on Ethereum that could maybe make this more feasible? There are now things like Optimistic Rollups and is ZK proofs technologies which are making an exchange with higher volumes on Ethereum possible. Recently, I don't know if you know Synthetix, it's a synthetic assets issuing and trading platform. They did a demo with Optimism, which is a research group doing Layer 2 stuff and they've been running this Layer 2 exchange pretty successfully with, I think, thousands of transactions per second. So it's a huge increase from a fully on-chain Dex. Wondering whether you've been looking at these solutions and what you think about them if you're eventually looking to build your own Dex.
TW: Yeah, I can't say I'm familiar with those projects specifically, but you've definitely given me some good homework. You know, I think the technology will get there. Is it here today? I don't know. But I think I'm an optimist. I think it'll get there tomorrow. And of course Gemini is thinking about many different things like including a Dex. It's just a matter of sequencing it and timing it, right. Like is the Dex revolution, is it two years out? Is it five? Is it 10 years out?
You know, in the early internet, YouTube couldn't really happen before it happened, right. We just didn't have the throughput, the compression, the technology. I remember my early experience on the internet downloading a webpage took like a minute, like the picture, line by line. It was painful. And then email was painful until people built easy to use applications like Gmail. I mean even AOL was great cause it helped onboarding people into those a walled gardens and it got people connected up and you know, the muscle memory of getting online. So yeah, everything's on the table. It's all possible. It's just a matter of when do we get to it on our roadmap.
CR: And talking about the kind of things that you are able to do right now, like listing these tokens that we mentioned on Gemini. Is this a change in strategy for you because you've, I think traditionally been very kind of slow to list different tokens compared to other US exchanges, and of course even even more so compared with exchanges outside of the US. You've been very judicious before adding any more tokens to your exchange. So does this represent a shift into maybe opening up your exchange to a higher quantity of tokens?
CW: Well, we're definitely going to be adding more projects, both crypto to the platform as well as adding more fiat currencies over the next year. I think one of the things to note is that we're the first exchange and maybe only exchange in crypto to ask for permission and not forgiveness. We waited to get our license to operate and we have to build at the pace of regulation and what we call the pace of trust. And I think every other exchange in the world does not do that. And the biggest ones in the world definitely do not. A lot of them don't KYC, they don't have the obligations that we have. And so they can list a hundred assets without having to do the work or getting the approval and that's just not the game we're playing.
“We're the first exchange and maybe only exchange in crypto to ask for permission and not forgiveness.”
And I think quite frankly, there's a lot of projects starting in 2017 that weren't real. We want to always avoid to the best we can listing a project that we have to delist or listing a project that doesn't really have a community behind it, and there's a big problem with a 51% attack or a fork or something like that. We're very conservative in that regard. And I think the other way to view it is, this is a marathon and we didn't sprint in the first mile because we really wanted to make sure that we have the right pace. We've got the right equipment and we're doing it the right way and building that sort of trust brand and ethos. And that's the game we're playing which we call the long game. We're trying to build a company that is, you know, innovating in crypto for the next a hundred years or more. There's many businesses in crypto today that are limited-time only, that are here today and may not be here a year from now for a variety of reasons. And that's just not the type of company we're trying to build. There's a lot of money to be made, perhaps a lot of volume, a lot of trading. But that's not what we're in it for.
TW: We actually we listed ether pretty early on. It was clear to us it was a real project. So it's not really a departure from our strategy. It's just our strategies takes longer to play out because we want to follow the rules. We want to play by the rules, we want to get the right permissions. We want to make sure something's not a security before we trade it. And if you make that mistake, if you're wrong, that can be enforcement actions, fines, all sorts of problems. So our end goal is the same, but how we get there is very different from other exchanges. And I think that's what sets Gemini apart, frankly.
[ … ]
Paid subscribers have access to the full transcript, including sections on:
Lending and staking on Gemini:
“We talk about the phase 1 use cases of crypto: buy, sell store. Well we have to, at some point, we have to get to use. Use, spend, earn, all of those other verbs.”
The stablecoin race
“What is that decentralized Twitter moment or Facebook moment? (…) I'm not sure that the game for stablecoin dominance has really started.”
Libra on Gemini
“Maybe Libra will come along and that will be the stablecoin of all stablecoins and Gemini will trade it and that will be the global, digital stablecoin.”
“The standard that (the SEC) set (to approve a Bitcoin ETF) hasn't been met by the market.”
“We’re big fans of ether. We have a material amount.”
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About the founder: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.