September 10, 2018 marked a watershed moment for the cryptocurrency industry as two new dollar-pegged stablecoins received official approval from the New York Department of Financial Services. Gemini Trust Company, the cryptocurrency exchange founded by Cameron and Tyler Winklevoss, and Paxos Trust Company, the firm behind the itBit exchange, both launched their respective stablecoins on the Ethereum blockchain, offering the first fully regulated alternatives to Tether.
TL;DR
- NYDFS approved Gemini Dollar (GUSD) and Paxos Standard (PAX) on September 10, 2018
- Both stablecoins are ERC-20 tokens pegged 1:1 to the U.S. dollar and run on the Ethereum blockchain
- Gemini Dollar backed by reserves held at State Street Bank with FDIC pass-through insurance
- Both coins subject to Bank Secrecy Act, anti-money laundering, and OFAC compliance controls
- Unlike Tether, both new stablecoins have undergone independent smart contract audits
A Regulatory Green Light
The approval from the NYDFS represented a significant milestone in the maturation of the cryptocurrency market. NYDFS Superintendent Maria Vullo emphasized that the approvals demonstrated that companies could create innovation and maintain strong compliance standards within a robust state regulatory framework that safeguards both regulated entities and consumers.
Both Gemini and Paxos received what amounts to a regulatory seal of approval that Tether, the dominant stablecoin since 2014, had never obtained. The NYDFS required stringent assurances from both companies, including full compliance with the Bank Secrecy Act, anti-money laundering protocols, and Office of Foreign Assets Control controls to prevent the tokens from being used in connection with money laundering or terrorist financing.
Gemini Dollar: Institutional Grade Backing
The Gemini Dollar, trading under the ticker GUSD, was designed from the ground up to address the trust concerns that had plagued Tether. According to the company, U.S. dollars backing the stablecoin are held at State Street Bank, one of the largest custodian banks in the world, and are insured through the Federal Deposit Insurance Corporation pass-through deposit insurance program, subject to applicable limitations.
To ensure ongoing transparency, Gemini enlisted BPM Accounting and Consulting to conduct monthly reviews of its bank holdings, providing regular third-party verification that each GUSD token is fully backed by real dollars. The smart contract controlling the Gemini Dollar was also independently audited by Trail of Bits, a respected cybersecurity firm specializing in blockchain security.
For users, the process was straightforward: traders with a Gemini account could convert U.S. dollars one-to-one into Gemini Dollars and withdraw them to any Ethereum address. Conversely, GUSD could be deposited back into a Gemini account and redeemed for fiat currency.
Paxos Standard: Instant Redemption for Traders
Paxos Standard, trading under the ticker PAX, took a slightly different approach. Customers could purchase and redeem tokens directly through Paxos.com, while investors using the itBit exchange or its over-the-counter desk could redeem their crypto holdings for Paxos Standard instantaneously. The itBit exchange also offered OTC trading of PAX tokens.
Like Gemini, Paxos committed to monthly third-party audits. The company engaged an independent public accounting firm to review and attest that all Paxos Standard tokens were fully backed by actual dollars. The PAX smart contract was audited by Nomic Labs, another blockchain security specialist, to verify that the code operated as intended.
Ethereum as the Foundation
Both stablecoins were built as ERC-20 tokens on the Ethereum blockchain, a deliberate choice that distinguished them from Tether, which runs on the Omni Layer protocol on top of the Bitcoin blockchain. The Ethereum foundation offered several advantages: faster transaction times, broader smart contract compatibility, and easier integration with the growing ecosystem of decentralized applications and exchanges.
When asked about plans to integrate the Gemini Dollar into other platforms such as wallets, point-of-sale systems, or other exchanges, Gemini was non-committal but optimistic. As an ERC-20 token on the open-source Ethereum network, GUSD can be sent to any Ethereum address, the company noted, expressing hope for third-party adoption.
The Stakes for Compliance
The NYDFS made clear that both companies face serious consequences for non-compliance. The approval terms stipulate that both Paxos and Gemini could have their charters revoked if they fail to comply with any of the agency provisions. This enforcement mechanism provided a level of accountability that had been missing from the largely unregulated stablecoin market.
The launch came at a critical time for the cryptocurrency industry. With the total market capitalization having shrunk by approximately $640 billion from its January 2018 peak, and Bitcoin trading around $6,300, the stablecoin approvals offered a rare piece of positive regulatory news in what had been a punishing bear market.
Why This Matters
The simultaneous approval of GUSD and PAX represented more than just the launch of two new cryptocurrencies. It signaled that regulators were willing to engage constructively with the crypto industry, provided that companies met rigorous compliance standards. For a market desperate for institutional legitimacy, the NYDFS approvals were a crucial step forward.
The contrast with Tether was unmistakable. While the dominant stablecoin had long faced questions about its backing and transparency, Gemini and Paxos entered the market with regulatory blessing, audited reserves, and transparent smart contracts. Whether this would be enough to dethrone Tether remained to be seen, but the gauntlet had been thrown down.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency investments carry significant risk. Always conduct your own research before making investment decisions.
GUSD and PAX launching as regulated stablecoins was a huge deal at the time. first real Tether alternatives with actual oversight
State Street custodian + FDIC insurance was the key differentiator. Tether never had that and still doesnt really. the gap was obvious even in 2018
State Street custody was legit but the FDIC pass-through insurance part was the real signal. Tether still cant claim anything close
funny how GUSD and PAX had all the regulatory backing and still got crushed by USDT. regulation alone doesnt win markets
NYDFS approving two regulated stablecoins in 2018 was the real start of institutional crypto. Tether was running on pure trust and everyone just accepted it until this moment
gusd having state street custody with fdic pass-through was the real signal. tether still cant claim anything close to that level of institutional backing
nydfs approving two regulated stablecoins in 2018 was the real inflection point. tether was running on pure trust until GUSD and PAX showed up
State Street holding GUSD reserves with FDIC pass-through insurance was a much bigger deal than people realized. first time a stablecoin had actual banking-grade custody
GUSD had state street and FDIC insurance and still got lapped by a stablecoin run by a small team offshore. product market fit matters more than regulatory credentials
both GUSD and PAX are basically footnotes now. USDC ended up being the regulated stablecoin that actually gained traction
GUSD had State Street backing and FDIC insurance and still got lapped by a stablecoin run by a 3 person team in the caribbean. product-market fit matters more than compliance
usdc_or_die State Street custody and FDIC insurance and GUSD still has basically zero market cap. turns out institutional rails dont matter without DeFi integrations
compliance without distribution is dead on arrival. USDC won because it integrated into every DeFi protocol while GUSD sat on regulated rails going nowhere
PAX rebranding to Pax Dollar and then BUSD eating its lunch was the real story. NYDFS approval only got them so far without distribution
Paolo R. BUSD eating PAX lunch and then BUSD itself getting killed by the NYDFS in 2023. ironic. the regulator who approved them also destroyed the successor product
regulated stablecoins in 2018 were the proof of concept. took until USDC in 2020 for anyone to actually get the formula right. GUSD and PAX were beta testers
GUSD and PAX as beta testers for USDC is exactly right. regulated stablecoins needed 2 more years of DeFi integration before anyone got the formula right
State Street custody and FDIC insurance and GUSD still has zero market cap. institutional rails mean nothing without DeFi composability. tether proved that
GUSD and PAX getting NYDFS approval in 2018 while tether operated with zero transparency for years. regulators protected the wrong stablecoin
state street bank with FDIC insurance sounded bulletproof in 2018. GUSD volume is basically zero now while tether does 100B+. compliance does not win markets
GUSD had State Street custody and FDIC insurance and still lost to USDT which had zero transparency. tells you everything about what the market actually values
exactly. compliance is a feature nobody pays for until something goes wrong. tether proved distribution beats regulation every time
distribution beats regulation until the attestation pdf stops coming. tether survived on network effects and spin, not product quality
reading this in 2026 is wild. GUSD volume is basically zero and PAX rebranded to USDP then quietly died. NYDFS approval was supposed to be the gold standard lol
NYDFS approves two stablecoins in 2018 then kills BUSD in 2023. playing both sides of the market and collecting licensing fees either way