Code Review Shows that Gemini Can Make GUSD Non-Transferable At Any Moment
The Gemini Dollar, or GUSD, could become the best and most legitimate stablecoin in the crypto community. However, a new report published online shows that Gemini has the power to make the GUSD non-transferable at any moment.
Earlier this week, Gemini made a surprise announcement by launching its Gemini Dollar – the GUSD. The ERC-20 token on the Ethereum blockchain tracks the value of the USD 1:1, with Gemini claiming that every 1 GUSD is matched with 1 real USD in a vault.
This is the same claim made by Tether and other stablecoin makers. Gemini, however, is one of the most regulated and legitimate cryptocurrency exchanges in the space. Gemini is registered as a New York trust company and is regulated by the New York State Department of Financial Services. They already have plans for an independent auditor to audit their USD reserves on a monthly basis and publish the results of those audits online.
That all sounds good. The crypto community could use a legitimate stablecoin tracking the USD.
However, a report posted online earlier this week shows a small problem with Gemini’s GUSD stablecoin.
As spotted by blockchain researchers Alex Lebed and Alexey Akhunov during a code review, Gemini can make GUSD non-transferable at any moment:
“The current implementation gives Gemini the ability to freeze any account or make all tokens non-transferrable. The custodian is able to completely change the implementation of the token every 48 hours.”
Lebed discovered the information after reviewing the code of the smart contract. You can view the code of that smart contract yourself here. Remember: GUSD is an ERC-20 token on the Ethereum blockchain, and the information is freely available by checking the Ethereum blockchain on Etherscan.
Lebed goes into deep detail about the code, how it works, and how much power Gemini has over the future of the smart contract.
One area of concern is with a function called completeUnlock buried in the smart contract. After explaining how that function works in a few hundred words of technical discussion, Lebed concludes with this:
“In plain English, it means that this function completeUnlock cannot be completed faster than once per 48h and this parameter can be extended in the future.”
What Does It All Mean?
What does all of this mean? Does this mean that the Gemini Dollar is doomed to fail? Does this mean that the crypto community’s first legitimate chance of having a regulated stablecoin has already faltered?
However, it does show that Gemini has significant power over the Gemini Dollar stablecoin, its emission, and its transferability. As the custodian, Gemini can control the generation of tokens from the smart contract, for example:
“The custodian can generate infinite amount of tokens, and every 48 hours it can totally change the implementation, making all tokens non-transferable or pretty much anything else.”
In other words, Gemini has the power to significantly change everything about the Gemini Dollar token every 48 hours. But that’s not the only issue:
“This project has another single point of failure: the company. They can just say one day: “you know what, sorry, we don’t want to change your tokens for dollars anymore.”
Stablecoins work because they’re launched with the promise of value: if you hold your GUSD stablecoin, then you can transfer that GUSD for 1 USD at any moment. That’s the reason the GUSD has value. If that immediate transfer isn’t available, then the value of 1 GUSD will fall below 1 USD.
If you trust Gemini and assume that they’ll act in the best interest of users, then none of this matters, and Gemini Dollar (GUSD) will continue moving forward as a high-quality stablecoin backed by legitimate US Dollars on a 1:1 basis. Of course, the cryptocurrency ecosystem is based on the idea of trustless relationships, and that’s why Lebed and Akhunov see issues with GUSD’s smart contract.
You can read the full blog post explaining the problems with the Gemini Dollar (GUSD) here. Let’s be honest, though: it’s still much more reputable than Tether.