Gold is considered a safe haven investment option helping counter shocks such as wars or market crashes. However, investing in physical gold comes with challenges such as storage, transportation, and liquidity. This has led to the rise of multiple alternatives such as gold sovereign bonds, exchange-traded funds (ETFs), futures contracts among others.
The latest addition to these gold-related investments is the gold-pegged crypto token. Tag along as we explain what these tokens are and how they work.
What is a Gold-Pegged Cryptocurrency?
Gold-pegged cryptocurrencies are a derivative asset class that allows users to purchase, trade, and receive exposure to gold without having to worry about physical storage and custody. They remove inconveniences related to transport, transferability, as well as associated illiquidity.
In the traditional world, they correspond to gold ETFs and CFDs, which track the price of gold without having to physically own it.
There are numerous cryptocurrencies that are pegged to gold in one way or another, and they are backed in different ratios, depending on the project itself.
In this article, we will take a look at some of the more popular gold-pegged cryptocurrencies.
Pros and Cons of Investing in Gold-Backed Cryptocurrency
As with every other field, investing in gold-backed tokens carries some advantages and disadvantages.
Advantages
1. Easily tradeable and transferable.
2. They are not associated with the illiquid nature of gold.
3. No minimum limit on gold investing (thanks to fractionalised tokens)
4. Can be easily stored in crypto wallets.
5. Managed by smart contracts with minimum human intervention.
Disadvantages
1. Dependant on centralised service providers who manage the physical gold.
2. High gas fees due to the underlying Ethereum blockchain.
3. Tokens are less liquid than traditional futures or CFDs.
Top gold-pegged cryptocurrencies
While there might be quite a few cryptocurrencies that claim to be pegged to gold, based on our research, only two are worth looking into. These are Paxos Gold (PAXG) and Tether Gold (XAUT). Both tokens are issued by well-known companies with a proven history in the field and boast somewhat sufficient trading volume. The rest of the gold-pegged cryptocurrencies fail to deliver substantial liquidity, and their respective websites haven’t been updated for years, which is a red flag.
Paxos Gold (PAXG)
Token symbol: PAXG
Market Cap (as of March 2022): $550 million
Top exchanges listed on: Binance, Uniswap, FTX, KuCoin, Kraken
At the time of this writing, in March 2022, PAXG is the biggest gold-pegged cryptocurrency by means of total market cap, which sits at around $550 million. It also boasts the highest daily traded volume.
According to the project’s official whitepaper, each PAXG token “represents one fine troy ounce of physical gold from a specific serialized gold bar.” Interestingly enough, if someone owns enough PAXG to represent an entire gold bar, they are able to redeem the tokens for the physical gold bar.
The benefit of this is that ownership can be divided into units of up to 18 decimal points, allowing people to get exposure to miniscule amounts of gold. The token exists through Ethereum’s ERC-20 token standard, making it easily portable across the network.
It’s also worth noting that the Paxos Trust Company – the issuer of PAXG 0 is a regulated financial institution, as well as a qualified custodian. It’s a state-chartered company that’s regulated by the NYDFS (New York State Department of Financial Services) and is required to uphold the highest standards when it comes to protecting customer assets. Moreover, the NYDFS also regulates PAXG itself.
Tether Gold (XAUt)
Token symbol: XAUt
Market Cap (as of March 2022): $210 million
Top exchanges listed on: FTX, Bitfinex, Uniswap
On January 2021, Tether – the company behind the most widely-used stablecoin (USDT), has launched a new digital asset ticked XAUt. In essence, the token, which is based on the ERC-20 and Tron’s TRC-20 standard – also represents one troy fine ounce of gold on a London Good Delivery bar.
Holders of XAUt are able to obtain undivided ownership rights to gold on the specified gold bars. Their allocation is identifiable through a unique serial number, weight, and purity.
Per the documentation, XAUt holders are also allowed to check the details of the gold bars that are associated with their addresses at any time through the website.
To make a redemption request in the form of physical gold, users need to have completed the TG Commodities Limited’s verification process. This is the company that issues the tokens. Otherwise, the token is tradeable on some popular cryptocurrency exchanges such as FTX and Bitfinex.
The Last Word
All in all, there are many gold-pegged cryptocurrencies, but only the above two meet liquidity and reputation criteria.
Investing in gold is long considered a rather safe effort, and it’s also a well-known hedge (protection) against inflation and tumultuous economic environments.
Of course, as with any other investment, this also carries the risk of capital loss. With this in mind, none of the above should be considered financial advice. The content is for educational and entertainment purposes only. Always do your own research and make sure to never invest more than what you can afford to lose.
Warning: This article is not meant to call for investment. We are not responsible for any investment actions from readers.
Join our community to update news and discuss this article:
- Cryptory Insights: https://t.me/CryptoryInsights
- Cryptory Global Community: https://t.me/CryptoryCommunity
- Vietnamese Telegram channel: https://t.me/cryptory_vncomm
- Facebook: https://www.facebook.com/CryptoryNetwork
- Twitter: https://twitter.com/CryptoryNetwork