A new type of cryptocurrency has emerged that is gaining momentum and attracting the attention of investors. What are gold stablecoins? Should you rush to invest in those gold-backed coins?
Crypto enthusiasts were mocking at stablecoins when those presumably pointless tokens first appeared. What is the reason to invest in coins which are pegged to fiat currency if the whole point of cryptocurrency is be independent from state-controlled economy?
But time passed and more and more investors understood stablecoins real value.
It was much easier to preserve your wealth and keep your savings in stablecoins with their absolutely predictable prices than with Bitcoin or altcoins.
Stablecoins have become immensely popular recently. If we take a look at the top 10 cryptocurrencies in April research conducted by Forbes we’ll see 3 stablecoins there – USDT, UDSC and Terra/Luna. The latter is quite tricky and unusual as for stablecoins, that are usually pretty straightforward.
So people do believe in stablecoins and are actively using them.
Stablecoins – especially USDT – are in high demand both by Ukrainians fleeing from war and Russians trying to avoid Western sanctions.
But there is another kind of stablecoins that is gaining traction.
Gold stablecoins are very similar to USDT or UDSC with the slight difference that they are pegged to gold rather than to US Dollar or any other fiat currency.
What are gold stablecoins?
In short, gold stablecoins are built on the same concept as traditional stablecoins.
Stablecoins are basically ‘stable’ because their value is pegged to a fiat currency. Thus, 1 Tether (USDT) coin is always worth 1 US Dollar.
But gold stablecoins aren’t pegged to fiat currencies. Instead, they are pegged to gold. Token’s baseline or minimum value will always be the same as the predetermined amount of gold.
If the digital currency becomes popular, the gold stablecoin’s price may rise above its value. In this approach, gold-pegged digital currencies provide insurance against a digital currency’s value plummeting.
Imagine, if you will, that buying a gold stablecoin you are in fact buying a piece of virtual gold.
Gold stablecoins are all about reducing volatility as much as possible. As gold itself is less volatile than fiat money, it is deemed obvious that gold stablecoins might prove to be the most stable cryptocurrencies on the market.
At least those who launch them clearly think so.
What is the ‘killer feature’ of gold-backed tokens?
One of the main concerns that a lot of people who are new to crypto have is that it’s not backed by anything.
It just gets on a screen after you buy it.
Crypto enthusiasts can, of course, point to mining as the tool to prove that crypto is worth something – at least the electricity spent to mine it. But the whole concept of Proof-of-Work is quite geeky and as such is presumably vague for ordinary people.
One of the reasons why traditional stablecoins have become popular is that people feel their ‘real’ value. It’s a Dollar, just a digital one, they think.
So the idea of attaching cryptocurrency to a real-world commodity does makes sense.
Gold is a classic hedge against all kinds of troubles, including inflation, geopolitical turmoil, wars etc.
It never goes out of style. And is even becoming more popular, hence the desire for gold-backed cryptocurrencies is not to surprise anyone.
Are there any risks?
Gold-pegged stablecoins come with their own set of concerns.
Security wise gold stablecoins aren’t different from other coins. So you should not be concerned about the security of your holdings and transactions more than with BTC or USDT.
But there is another hazard that is not to be forgotten.
Gold stablecoins raise the issue of holding a huge supply of actual gold. Companies that are issuing these tokens are to support their value with the appropriate amount of gold.
So before investing, you should look into who holds the gold for a particular cryptocurrency and where it is kept. If the gold vanishes for any cause, the token’s value vanishes as well.
Gold stablecoins are basically synthetic gold exposure backed by gold holdings. Perhaps trust is part of the thing that people would consider when deciding whether we can trust companies that issue these tokens the same way they trust traditional banks.
What gold stablecoins are available now?
There two prominent gold stablecoins worth considering.
Pax Gold (PAXG) is an ERC-20 token. It is compatible with the Ethereum blockchain and other networks that are compatible with it.
PAXG is pegged to one troy ounce of a 400-ounce London Gold Delivery gold bar. Holders of PAXG tokens actually own the underlying asset, which is held by the Paxos Trust Co. and which can be redeemed at any point.
PAXG price tracks the price of the gold it represents, which is subject to changing market conditions.
Tether Gold (XAUt) is a digital asset offered by TG Commodities Limited. One full XAUt token represents one fine troy ounce of gold on a London Good Delivery bar. The XAUt token can be transferred to any on-chain address from the purchasers’ Tether wallet where it is issued after purchase. Specific gold bar(s) will be associated with each on-chain address where Tether Gold is held.
Users can identify the specific gold bars and number of ounces of gold they hold on each bar. On the TG Commodities website there is a form where you can enter the address that holds your XAUt tokens. Then you will the the associated gold bars.
These gold stablecoins perform surprisingly well in 2022.
Pax Gold (PAXG) has increased by 7.4% in 2022, while Tether Gold has increased by 8.5%.
Bitcoin (BTC), on the other hand, has lost nearly 13% of its value, while Ethereum (ETH) has dropped 20%.
What are gold stablecoins good for?
Traditional stablecoins have proved to be more reliable investment than altcoins. They are normally pegged to the US Dollar (sometimes to Euro) to reduce volatility.
But fiat currencies are subject to inflation. And that is becoming more and more obvious in times of war and phantom menace of the global economic crisis.
Gold-backed stablecoins are to the rescue. They are pegged to gold which remains the most stable of all the valuable assets. It is much less volatile than Dollar or Euro, not to mention Bitcoin or altcoins.
With inflation hitting all-time highs, the US Dollar is significantly losing its value. Its role in global geopolitics is becoming less prominent.
More and more investors are inclining towards gold. Stablecoins that are pegged to gold seem quite a reasonable alternative to existing cryptocurrencies.
Gold stablecoins are just as ‘digital’ and easily transferrable as Bitcoin or altcoins. But at the same time they are backed by gold. Which is a kind of a promise. These coins won’t get cheaper unless the gold get cheaper. It’s that easy.
According to Tether’s spokesman, Tether Gold has been boosted by larger investors. Most of them are utilizing the Tether Gold to convert a portion of their holdings into gold. They are seeking for more inflation-resistant assets. Gold is their first choice. And gold stablecoins too.