Gemini Capital: As Gold As It Gets

Cameron and Tyler Winklevoss discuss how Gemini is shaping the future of money

The twin brothers grew up visiting the offices of Winklevoss Technologies, an industry-leading developer of pension forecasting software founded by their father, Dr. Howard Winklevoss, Jr. It wasn’t long before their own entrepreneurial ambitions were to materialize, beginning with the establishment of their high school’s first rowing team. 

They were propelled to fame in 2009 with the publication of Ben Mezrich’s The Accidental Billionaires, which tells the story of how they and fellow Harvard University students, Mark Zuckerberg and Eduardo Saverin, battled over a little social media platform we call Facebook. The book and its Academy Award-winning film adaptation, The Social Network, provide a fascinating snapshot of events that led the world into a new age of social connectivity. However, it failed to paint an accurate picture of two people who would find themselves at the center of another technological movement that is proving to be one of the most disruptive of our time. 

This telling begins with the founding of Gemini–a next-generation cryptocurrency exchange and custody platform that has captivated and shaken the legacy banking community. Named after the astrological sign represented by twins, Gemini also symbolizes the duality of the old and new world: an archaic monetary system that has dominated economies until now, and the dawn of digital currency. 

 Jumpstart had the opportunity to interview Cameron and Tyler about how Gemini came to be, the company’s philosophy, and how it plays into their vision for the future of money. 

A digital gold mine

Let’s first go back to 2012. Cameron and Tyler were on vacation on the island of Ibiza. The elite rowers, who came in 6th for the men’s pair event at the 2008 Beijing Olympics, had been training six hours a day, six days a week since they were 14-years-old. Having retired from the sport, they founded early-stage investment firm, Winklevoss Capital, that year and were taking a well-deserved break. It was amidst the chaos of deafening EDM and free-flow champagne that they learned about crypto. 

“We were blown away by this new form of money, purpose-built for the Internet, that worked like email,” says Tyler. 

Early evangelists touted the decentralized currency as a radical medium of exchange guided by a mathematics-based code, rather than a state. While it was still unknown to most and contentious to the rest in 2012, Cameron and Tyler knew the technology had the potential to become a new asset class. 

“Our initial investment was informed by our belief that bitcoin, due to its fixed supply, was a store-of-value–the software version of gold, digital gold, or gold 2.0,” says Cameron. 

Due to its price volatility and association with anarchical, libertarian ideologies–an impression stemming from its use by the criminal underworld–crypto was treated with profound skepticism by finance industry leaders and even Silicon Valley technologists in its early days. But Cameron and Tyler took a long-term view, basing their confidence in the nascent technology on the impenetrability of blockchain protocols and its community of ardent and cerebral advocates. 

“The energy and passion of the Bitcoin community was and still is electric–something we had never felt before. However, at that time, it was the Wild West and far from being ready for mass adoption,” says Tyler. They wouldn’t allow it to remain lawless for long. 

On April 11, 2013, the front page of The New York Times read: ‘Never Mind Facebook; Winklevoss Twins Rule in Digital Money.’ They told the Times that they owned US$11 million worth of Bitcoins (BTC), which was around 120,000 coins, or 1% of the total in circulation in 2013. The average coin price was $120 that year; at its peak in 2017, it was over $19,000, making Cameron and Tyler the world’s first Bitcoin billionaires (Yahoo Finance). Related headlines made them crypto’s most high-profile and successful champions, but their commitment to advancing the digital asset went much deeper. 

To describe Cameron and Tyler as crypto bulls would be like describing Elon Musk as a car enthusiast. Accumulating a significant amount of the digital currency was only the first step to reaching their ultimate goal of realizing the future of money through crypto. 

At the New York Department of Financial Services’ (NYDFS) public hearing on virtual currency, American VC Fred Wilson described its five phases as (1) acceptance by crypto-libertarians [2009 to 2010]; (2) use on platforms like the dark web marketplace Silk Road, also known as the “vice phase” [2010 to 2011]; (3) a form of speculative trading [2011 to 2014]; (4) its current phase of being accepted by real merchants; and (5) becoming programmable money, or “real money represented in digital form” (IBM). 

Reaching the final stage would require the reversal of a narrative that placed digital currencies outside regulatory frameworks, meaning a lack of trust in the technology was a critical obstacle to overcome. By 2013, crypto had–for the most part–moved past the public’s initial perception of it as an instrument for illegal activity, but many remained concerned about its stability and the platforms managing it. 

Mt. Gox, the largest exchange during crypto’s early years, experienced multiple security breaches until it filed for bankruptcy in 2014 after losing 850,000 BTC worth around $480 million (approximately $8.5 billion today)–estimated to be 7% of the total number of BTCs at the time (Coindesk). Having used Mt. Gox themselves and witnessing its demise further cemented Cameron and Tyler’s conviction that “thoughtful regulation in cryptocurrency is a win-win for the market and regulators alike.” 

They initially set out to invest in a company that would fill the gap left by the defunct exchange, but it soon became apparent that no entrepreneur ascribed to their exacting “security-first mentality” at that stage. So they took it upon themselves to create an exchange and custodian that involved regulators every step of the way. 

“For the industry, regulation is the path to trust, which underpins every successful market and lays the foundation for world-changing innovation,” says Cameron. “Without it, cryptocurrency industry pioneers run the risk of building a house of cards.” 

They founded Gemini in 2014 as “a regulated, easy, and safe way to buy, sell, and store Bitcoin and other cryptos,” where trust is built on the company’s promise to meet the high and complex demands of today’s governing bodies. For users, it’s by providing a simple and intuitive platform, making crypto accessible to the average person. 

“We have four key pillars that drive all our decisions: security, licensing, compliance, and product,” adds Cameron. “These pillars are what help us build trust, both in the market of the future and in Gemini.” 

A sign from the crypto gods

Gemini launched in 2015 as a New York Trust Company–a license that took the company a year and a half to obtain. Currently, individuals and institutions can trade BTC, Ether (ETH), Bitcoin Cash (BCH), Litecoin (LTC), and Zcash (ZEC). The platform also offers various order types for advanced traders, including Limit, Immediate-or-Cancel, Maker-or-Cancel, and Auction-Only.

“We married one of the oldest regulatory frameworks in the world, a New York trust company, with one of the newest global technologies,” says Tyler. “We waited to operate until we received our trust charter, which was a first in the crypto industry.” 

Gemini is one of the first digital asset exchanges and custodians to be regulated by the NYDFS, making the company subject to the department and New York banking laws’ stipulations on capital reserves, cybersecurity, and banking compliance. This feat, like the many regulatory hurdles that were to come, was a process of discovery. 

“We want to set the standards of excellence and best practices for the cryptocurrency industry as a whole,” says Cameron. “The only way to do that is by making sure we’re a safe, regulated place for people to buy, sell, and store cryptocurrency.”  

Navigating the murky waters of digital asset regulation seems to be a running theme for Gemini, and the company has made it a habit of coming in first. It’s the first crypto exchange and custodian to complete the Service Organization Control (SOC) 2 Type I examination–an audit that tests an organization’s financial oversight controls–and is currently undergoing a SOC 2 Type II examination.

Gemini also became the world’s first licensed ETH exchange in 2016 and licensed ZEC exchange in 2018. It was the first to introduce daily BTC auctions in 2016, ETH auctions in 2017, and a regulated stablecoin–the Gemini dollar (GUSD)–in 2018, which is pegged one-to-one to the U.S. dollar. 

The company recently introduced Gemini CustodyTM, a regulated, institutional-grade custody solution, which allows users to trade instantly through credits on the Gemini Exchange. Gemini’s custody features also include a user interface for customers to grant access to auditors and create sub-accounts with various levels of permissions. Such efforts are informed by Gemini’s mission to provide a “crypto-native solution” that ensures the same level of security, liquidity, and trust that traditional exchanges offer.  

“The healthiest financial markets in the world are the most thoughtfully regulated, and the right regulation will propel bitcoin forward,” says Tyler. “You can’t point to a thriving market today that isn’t rules-based or governed by some level of oversight.”   

Gemini has applied for a broker-dealer license with the Financial Industry Regulatory Authority, which would allow it to become an Alternative Trading System on a federal level. If and when approved, the license would enable the company to trade securities; previously, it worked with tokenized securities platform Harbor to allow institutional investors to purchase securities with GUSD. 

On the industry-side, Gemini is a part of the Virtual Commodities Association, a group that aims to establish a self-regulatory organization, where the goal is to add yet another layer of oversight for user protection. 

The company also works with several fintech providers to foster crypto’s applications in the real world. Earlier this year, Gemini announced that it would be storing client assets for BlockFi, a startup that provides loans backed by crypto, which also marked the establishment of BTC and ETH’s first interest-bearing accounts. In May, Gemini partnered with payment gateway Flexa, allowing users to spend BTC, ETH, BCH, and GUSD at large U.S. retailers, including Bed Bath & Beyond, Nordstrom, and Office Depot.

While these steps have progressed crypto’s standing as an asset class, some in the community have pushed back against actions that they believe deviate from the technology’s fundamental purpose of being a decentralized currency. In January of this year, Emilio Janus–columnist at crypto news platform, Bitcoinist–wrote that regulated exchanges signal the “‘sanitation’ of Bitcoin for selling to the masses,” which “goes against the biggest reason it was created: getting rid of middlemen.” 

Cameron and Tyler believe that there’s room for regulated and unregulated exchanges in the crypto market; the key is that consumers are provided options in terms of how they access the technology. With mainstream investors and institutional clientele rushing in, crypto is slowly but surely becoming a part of the formal banking system–necessitating a measured approach to its advancement.  

In the U.S., one notable hurdle for  wider adoption is the Securities and Exchange Commission’s reluctance to approve any crypto exchange-traded funds (ETF). An authorization would allow investors to trade the ETF through traditional exchanges and markets, opening up the public’s access to digital currencies in a major way. 

That said, Winklevoss IP was awarded a patent claim in June this year that will settle ETPs holding cryptocurrencies, and is one of seven crypto-related patents held by the company. This development indicates that regulators recognize the legitimacy of digital asset management, suggesting a crypto ETF is potentially on the horizon. 

“Today, there is a growing realization that cryptocurrency and regulation are here to stay,” says Tyler. “If we as an industry engage with regulators, we will build frameworks that foster consumer protection and market integrity.” 

Now, the world

While Gemini has made tremendous strides in the digital asset space in the U.S., taking on the rest of the world is a different game. Having expanded to Hong Kong, Singapore, South Korea, Japan, and most recently, Australia, the company is competing against the likes of Kraken, Coinbase, and Binance as it continues to grow its global presence. 

The landscape has become more cutthroat in Asia and Europe, where the number of crypto aficionados is increasing more rapidly compared to the Americas. A majority of fundraising deals in the industry now take place on the two continents; the Asian market makes up 26% and Europe, 41%, as of the second quarter of this year (PwC). The Americas, which assumed 51% of global deals in the second quarter of 2018, saw a drop to 28% in the same quarter of this year (PwC). 

To stay competitive, Gemini has welcomed some of the industry’s top talents. In August, the company announced that David Damato–formerly the Chief Security Officer of the world’s most valuable private cybersecurity company, Tanium–has joined the team in the same role. 

“We are most proud of the team we have built and the senior leaders who have joined us in the past year,” says Tyler. “These are folks who could literally go anywhere, but they decided they needed to be in crypto and they wanted to build the future of money at Gemini.”

The theme for the company’s strategy in 2019 has been “going mobile and global.” Gemini launched a mobile app last December, which led to a dramatic uptick in users. The company has also extended its operations to Chicago, bringing the entire team to over 200 people.  

“Chicago, one of the world’s major financial centers and the birthplace of commodity trading, is a natural place for us to be,” says Tyler. “Gemini’s Chicago office is an engineering hub focused on supporting our core offerings, including those for professional trading and custody, as well as building out new product lines.” 

Cameron and Tyler are also encouraged by crypto’s potential to enable social mobility through financial inclusion as Gemini enters new markets. They note that two severe hindrances to economic development and equity are the “one billion-plus unbanked individuals on the planet” and the “massive centralized data silos,” which can be addressed through crypto’s accessibility and decentralized data structure. 

“This new system […] one that isn’t limited to banking hours and the whims of what can only be described as a Balkanized banking system, means that more people have access to financial services, which helps democratize the power of investment and banking,” says Cameron. 

For entrepreneurs hoping to enter the industry, their advice is to remain patient while regulation catches up to innovation, as “this is just the bottom of the first inning for bitcoin.” They believe that the barriers to entry will lower, providing more opportunities for founders to build products that will help Internet money realize its vast potential for financial inclusivity. 

“Our advice is to always ask for permission, not forgiveness. Bitcoin isn’t going away. Bitcoin and cryptocurrency will only continue to reimagine industries, starting with money,” says Tyler. 

When Hollywood decides to turn your life into a movie, you can bet that your identity will forever be tied to that of your character–although it would appear that Cameron and Tyler are exceptions. Not only are they guiding their own story, but it’s one that will affect those far beyond themselves. 

Mezrich, who wrote another book about them this year titled Bitcoin Billionaires, has gotten to know Cameron and Tyler well over the past decade, especially through tracing their crypto journey. He’s stated that he doesn’t think “[they] have been part of two revolutions by chance” (Boston Magazine). To him, their participation is a result of the fact that “Tyler and Cameron didn’t believe they were on the world to exist; they were here to create, to build” (Bitcoin Billionaires, 35). 

For Cameron and Tyler, building the future, as we enter a new decade, means transforming our monetary system by launching the adoption of crypto into a new stratosphere. What they plan on pioneering once this destination has been reached is anyone’s guess. 

Min is Jumpstart’s Editor in Chief.


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