Game of Coins: Inside the Paxos-Gemini Stablecoin Discount War

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Dollar-backed stablecoins are generally supposed to be worth $1, whether it's Gemini's GUSD or Paxos' PAX. But according to four sources with knowledge of these cryptocurrency exchanges, both stablecoin-issuers privately offered over-the-counter [OTC] trading desks up to a 1 percent discount if traders used these tokens in some fashion before redeeming them for USD. "They were offering that as a sweetener for getting it kick-started with adoption," an OTC trader, who asked to stay anonymous, told CoinDesk.

Proudman explained to CoinDesk that the discounted stablecoins can now be freely traded.

The frenzy arose because the PAX discount program coincided with the release of HUSD, which is essentially a pool of stablecoins offered by the Singapore-based exchange Huobi that allows traders to deposit one type and later withdraw another.

Besides GUSD and PAX, the pool also supports Circle's USDC and TrustToken's TUSD. According to Kelvy Ko, partner at crypto hedge fund Leotank Digital Trading, Huobi's HUSD pool has made it much more convenient for traders to swap stablecoins and leverage arbitrage without actually trading them.

Then in early December, Binance saw a plethora of multibillion-dollar PAX trades as traders struggled to find liquidity and arbitrage sources beyond the redeemer itself.

One of the anonymous OTC traders CoinDesk spoke with said that stablecoin issuers were inspired to launch this short-lived campaign because there isn't an organic demand for these assets.

"We elect to not use the incentive strategies from any of the stablecoin companies," Leviathan said, adding they use stablecoins for arbitrage related to bitcoin, ethereum and other trading pairs.

"From a trader's perspective, we find ourselves electing to use coins we are comfortable with over those that we are less comfortable with."

Since stablecoin issuers require a significant amount of know-your-customer information in order to redeem the tokens, the anonymous trader said OTC desks that participated in the rush may have revealed competitive information about their partners and trading volumes to the exchanges, namely Gemini and Paxos.

For PAX traders in particular, the limits are now $20,000 for verified accounts and $1,000 for unverified users.

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