MakerDAO Favors Holding GUSD Stablecoin as Part of Reserve in Early Voting

Decentralized finance giant MakerDAO's community was heavily favoring keeping Gemini’s GUSD stablecoin as part of Maker’s reserve. The ongoing vote is testing confidence in Gemini, the Winklevoss-founded exchange that has been swept up in recent crypto contagion.

Voters are casting votes whether to keep the GUSD ceiling at the current $500 million, to decrease it to $100 million or to zero, which would boot GUSD from the reserve, according to Maker’s governance site.

At press time, 69% of the votes favored keeping the GUSD ceiling intact at $500 million, while 31% voted for dropping GUSD to zero. The final result may change; the voting ends Thursday (Jan. 19) at 16:15 UTC.

The Maker protocol is led by a decentralized autonomous organization (DAO), in which holders of the protocol’s governance token, maker (MKR), can vote on proposals. Currently, MakerDAO holds $489 million in GUSD in its Peg Stability Module (PSM) facility, which acts as a reserve system with $7 billion of assets to back its DAI stableoin’s value and price peg to the dollar.

Starting in October, Gemini has been paying a 1.25% annual yield to Maker on GUSD holdings based on an earlier agreement.

The voting comes as Gemini, the issuer of GUSD, is under pressure after halting withdrawals from its yield-paying product, called Gemini Earn, and because of a lawsuit by the top U.S. securities regulator. Gemini is the brainchild of mega-crypto investors Cameron and Tyler Winklevoss, who still helm the company.

Crypto investors worry that Gemini’s woes may destabilize its GUSD stablecoin, roiling Maker’s $5 billion DAI.

“Recent MakerDAO governance discussions have raised concerns about GUSD’s heavy reliance on the PSM and Gemini holding GUSD reserves at Silvergate,” Riyad Carey, analyst of digital asset research firm Kaiko, wrote in a report earlier this month.

Currently, MakerDAO holds some 85% of all GUSD in circulation, making Gemini’s stablecoin overwhelmingly reliant on its relationship with MakerDAO.

Additionally, concerns loom about GUSD’s value being partly backed by cash held at Silvergate Capital (SI), the embattled crypto-friendly bank that has suffered in the fallout from last year’s various crypto debacles, most notably FTX’s demise. The bank’s shares lost 88% of their value in the past year on the New York Stock Exchange.

The U.S. Securities and Exchange Commission (SEC) filed a lawsuit last week alleging that Gemini Trust and major crypto lender Genesis Global Capital sold unregistered securities to customers through the Gemini Earn program. (CoinDesk and Genesis are owned by the same parent company, DCG.)

Users’ assets in the Earn program are locked up at the moment, after Genesis’ lending arm, which powered Gemini Earn, suspended customer withdrawals in November as FTX collapsed. The withdrawal freeze has led to scuffling between the two firms. According to recent reports, Genesis is laying groundwork with its creditors for a bankruptcy filing.

GUSD was an integral part of Gemini’s Earn program, offering as high as 8% annual yield for investors depositing GUSD, according to Kaiko.

Read more: Crypto Exchange Gemini Suffers $485M Rush of Outflows Amid Contagion Fears

“Holding GUSD is akin to holding GUSD’s underlying assets with additional risk related to Gemini,” Carey said. “It seems possible that the community may opt to move on from GUSD in favor of new pilot projects,” he wrote at the time.

The “worst-case scenario” for GUSD would be Gemini’s troubles forcing a delay in GUSD redemptions and causing a temporary deviation from its dollar peg, according to Carey. However, “even a significant depegging would be unlikely to rattle DAI,” he added.