Gemini crypto: zero funds on Signature Bank

The crypto exchange Gemini has officially declared that it has neither its own funds nor their clients’ funds held on deposit with the failed crypto bank Signature Bank.

1/ It’s very sad to hear the news about Signature Bank. They have been incredible partners to Gemini and our industry for the better part of a decade.

We have zero customer funds and zero Gemini dollar (GUSD) funds held at Signature Bank.

— Gemini (@Gemini) March 13, 2023

Signature Bank went bankrupt a few days ago, following the bankruptcy of Silicon Valley Bank.

While Silicon Valley Bank was mainly active in California (Gemini is in New York), Signature Bank was the bank for many crypto companies.

The relationship between the crypto exchange Gemini and Signature Bank

Signature Bank was headquartered in New York, where Gemini is also based, and provided specific services for sectors such as commercial real estate, private equity, mortgage services, and venture banking.

It was founded in 2001, which is long before the emergence of cryptocurrencies, but by 2023 crypto-related assets had grown to account for 30% of its deposits.

At the time of closing it had assets of $110 billion and deposits of $82 billion, such that it was the third largest bank failure ever in the US by face value.

Signature Bank entered the crypto sector in 2018, and by 2021 more than 16% of its deposits were now coming from this sector. It also held part of Circle’s reserves for USDC.

Thanks to this boom, its stock market value rose from $75 to $375 in just over a year, and at that point it was dubbed a “crypto bank.”

According to the Financial Times, eight of the twelve largest cryptocurrency brokers had accounts on Signature Bank, and the bank in 2019 had also developed an open payment network called Signet that allowed real-time settlement of funds transfers via blockchain. By the end of 2020 it already had 740 customers using Signet.

As such, it was not a bank created for crypto customers, but a traditional bank that had recently opened up to the crypto sector.

Gemini’s crypto reserves and the closure of Silvergate Bank

Instead, Gemini is one of the largest US crypto exchanges, although it has lost some market share in recent years.

For example, the largest US exchange, Coinbase, still has more than $2 billion in daily trading volume, while Gemini has plummeted to $33 million.

The other major US crypto exchange by now is Kraken, with $1.2 billion in daily trading volume. Binance US for instance is just under a billion, and Gemini in this respect has now been overtaken even by smaller and unknown exchanges such as PointPay, WOO X, Felixo, and many others.

The vast majority of trading on Gemini involves BTC and ETH, and is done in USDT and USDC. Everything else is marginal.

Despite this, its possible involvement with the failure of Signature Bank would certainly have dealt another blow to the crypto sector, thus the official statement served to prevent the spread of new panic.

It is worth noting that Gemini over time has specialized mainly in institutional-level crypto services aimed at large clients, so it is not so much trading but mainly custody that could have created big problems in case of a lack of funds.

What’s more, Gemini has been suspected of being in crisis since October, and was recently accused first of lying to clients, and then of illegally selling unregistered securities.

GUSD: Gemini’s stablecoin

Gemini does not have its own token, but it has issued its own stablecoin, Gemini USD (GUSD).

When it issued it, it looked like it could challenge its two main rivals, USDT and especially USDC, and instead over time it proved to be a very unsuccessful project.

It is enough to mention that while it never really lost its peg with the dollar, its market capitalization never managed to exceed $1 billion. Moreover from its peak of 866 million in November last year, it has since fallen to its current 600 million.

For example, USDC capitalizes over 37 billion, and USDT as high as 74. GUSD’s market capitalization is currently lower even than that of the algorithmic stablecoin USDD, which has recently had serious problems losing its peg with the dollar.

So all indications are that Gemini is going through a difficult time.

Gemini and the failure of Signature Bank

If nothing else, at least it has not had problems related to the failure of Signature Bank.

In official statements they admit that the bank has been a partner of theirs for most of the decade, but reveal that they no longer have any dollars on deposit with them.

In fact, to date all of Gemini’s bank deposits, including those of the funds they hold on behalf of their clients, are on JPMorgan, Goldman Sachs and State Street Bank.

All of GUSD’s reserves are on State Street Bank, Goldman Sachs, and Fidelity.

In its official communication Gemini emphasizes that all of its clients’ funds and dollar reserves are 100% covered, and are therefore available for withdrawal at any time.

This, for example, was not true of FTX, the second largest U.S. crypto exchange after Coinbase, which went bankrupt in November.

To highlight a different and more cautious attitude, Gemini also states that they are continuing to actively monitor counterparty risk due to banking partnerships to prevent any impact on customers.

At this point, it suggests that they may have recently decided to stop using banking services offered by Signature Bank possibly because they sensed that the risks related to this bank’s resilience were increasing.