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Tether gold (XAUT) is a gold-backed stablecoin and is the same Tether token behind USDT. Launched in 2020, Tether gold is currently the largest gold-backed stablecoin in the market. XAUT represents one troy ounce of gold on a London Good Delivery bar. The gold is held in a company-controlled Swiss vault.
On top of gold, Tether gold also grants access to traditional financial assets like exchange-traded funds (ETFs). Token holders can check the amount of gold they own on Tether’s look-up website, which provides information on the gold bars these token holders own.
The Tether gold token can be held on an Ethereum-based wallet as an ERC-20 token, as well as on the TRON blockchain as a TRC-20 token. The minimum purchase for Tether gold is 50 XAUT or 50 troy ounces of gold.
Who issues gold-backed tokens?
For a cryptocurrency to be gold-backed, it must be issued or created by a company that owns and stores physical gold in vaults. For example, DigixGlobal, a Singapore-based company, is behind the popular Ethereum token, DigixGlobal (DGX).
DigixGlobal makes investing in gold more accessible by offering fractional tokens. As such, investors can accumulate gold in small amounts and manage their holdings in real time, as well as participate in exchange-traded funds. The physical gold backing DGX tokens are held in Singapore at the Safe House Singapore vault and in another vault in Canada.
One DGX equals one gram of gold, with a minimum purchase amount of $0.50 for gold-backed tokens, $50 to $600,000 for gold bars, and $150 for ETFs. The cryptocurrency is backed by 100-gram Swiss gold bars from refineries such as Metalor, Valcambi and Produits Artistiques Metaux Precieux.
Another example of a gold-backed cryptocurrency is Paxos Gold (PAXG), offered by the New York-based firm Paxos Trust Company. Each PAXG is backed by one fine troy ounce of London Good Delivery gold, stored in Brink’s vaults in London.
The token is an ERC-20 token, and can be traded, stored and transferred much like any other Ethereum-based token. Paxos requires a minimum purchase of $20 for PAXG tokens and does not have any maximum limit.
What are some of the benefits of investing in gold-backed tokens?
The major advantage of investing in gold-backed tokens is that, unlike physical gold, they are digital and can be divided into smaller parts, making them readily transportable, easily transferable and relatively more affordable.
Another key benefit is that since gold-backed tokens are pegged to the price of gold, they will maintain their value even when other cryptocurrencies are crashing. This makes them a good investment during volatile periods in the cryptocurrency market.
Lastly, some gold-backed tokens also offer additional features and benefits, such as access to traditional financial assets like ETFs. Crypto ETFs track the price of digital tokens and are traded daily, allowing investors to further diversify their portfolios.
Are there any drawbacks to investing in gold-backed tokens?
One of the main risks associated with gold-backed tokens is that they are still a relatively new concept. As such, there is no guarantee that these tokens will maintain their value or that the companies backing them will be able to meet their obligations.
Another risk to consider is that, since gold-backed tokens are pegged to the price of gold, they will go down in value if gold prices crash. Although such a phenomenon can be considered rare, it is still a possibility that investors should be aware of.
Furthermore, certain gold-backed cryptocurrencies have trouble with low liquidity. This can be attributed to a limited investor base due to a lack of trading on crypto exchanges, making it difficult to buy or sell these tokens when one wants to.
Finally, accounting for the actual gold may not be as transparent and clear-cut as accounting for digital currencies, which blockchain technology inherently protects. As such, ascertaining whether or not the physical gold exists and if its storage is secure can be a matter of trust for some investors.
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