Gold stablecoins: Gold stablecoins: Should you invest in the latest crypto fad?

Synopsis

Popular crypto tokens in this class are PAX Gold (PAXG) and Tether Gold (XAUT) and are part of the top 300 cryptocurrencies by market capitalization (m-cap). The m-cap of both these tokens has jumped exponentially over the last one year, with the former outperforming the latter.

According to some experts, recent tension between Russia and Ukraine, which has increased the bullion’s appeal, has also boosted the demand for such tokens.

Related

  • Why are Bitcoin critics Buffett & Munger investing in crypto-friendly companies?
  • Charlie Munger says cryptocurrencies should have been banned earlier
  • NYSE moves closer to NFT trading with trademark application

New Delhi: Gold-backed tokens, often called gold stablecoins, are the latest fad among crypto investors given their recent outperformance.

Popular crypto tokens in this class are PAX Gold (PAXG) and Tether Gold (XAUT) and are part of the top 300 cryptocurrencies by market capitalization (m-cap). The m-cap of both these tokens has jumped exponentially over the last one year, with the former outperforming the latter.

According to some experts, recent tension between Russia and Ukraine, which has increased the bullion’s appeal, has also boosted the demand for such tokens.
Presented By

Did you Know?

A statue honouring mysterious Bitcoin founder Satoshi Nakamoto was unveiled in a business park near the Danube River in the Hungarian capital Budapest

View Details »
What are gold stablecoins?
Gold-pegged altcoins are ones pegged to the price of gold. In the case of PAXG, every token is backed by one fine troy ounce (t oz) of a 400 oz London Good Delivery gold bar, stored in Brink’s vaults.

Investors can even look up the address and receive a serial number of the physical gold bar that backs their token, said Avinash Shekhar, CEO, ZebPay.

“These coins come with benefits such as ease of investment in gold through alternative digital means and no hassles related to storage of physical gold owing to higher security,” he added.

Dileep Seinberg, Founder & CEO, Thinkchain said the history of crypto and gold goes back to its initial conception when in 1998 Szabo designed a model for the first decentralised digital currency and named it ‘Bit Gold’.

“Though it was never implemented, it has been called a ‘direct precursor to the Bitcoin architecture’. Such coins are backed by a real asset such as gold and have the potential equal to its growth, which is likely to give them stability,” Seinberg added.

Currency vs gold stablecoins
The gold-pegged and currency-pegged cryptocurrencies differ on the basis of the underlying assets they are pegged to.

Vikram Subburaj, CEO, Giottus Crypto Exchange said, “Currency fluctuations (US Dollar) are usually minimal on a daily basis and hence currency-pegged stablecoins are better suited as a medium of exchange.”

Gold-pegged stablecoins do not offer much utility other than a convenient way to invest in gold, he said, adding that investors who prefer their gold investments to be liquid, may prefer such crypto offerings.

Uses case of gold stablecoins
Pratik Gauri, CEO & Founder 5ire said that one possible utility of a gold-backed stablecoin could be the ability to use where global fiat currencies are not recognized or are unavailable.

“An investor that seeks to diversify their holdings yet seeks stability in value should invest in gold-backed stablecoins. Initially, gold was also used for stability or guarantee of some sort,” he added.

Key risks
While gold-backed tokens have several advantages like smooth and fast settlement, no minimum purchases and high transferability, their redemption process isn’t always so smooth. It can take a few days sometimes.

There is an underlying risk associated with the holding company actually backing gold given a lack of auditing mechanism. There is also a limit to how much gold can actually be backed.

Finally, while dollar-pegged stablecoins have many DeFi products associated with them, gold-pegged stablecoins lack associated products, Subburaj from Giottus said. Presented By

Crypto Returns Calculator

0x1inchAaveAirSwapAlgorandAmbire AdExAnkrAugurAvalancheAxie InfinityBancorBand ProtocolBasic Attention TokenBinance CoinBitcoinBitcoin CashCOTICardanoChainlinkChilizChromiaCivicCompoundCosmosCurve DAO TokenDFI.moneyDIADaiDashDecentralandDigiByteDogecoinEOSElrondEnjin CoinEthereumEthereum ClassicFantomFetch.aiFilecoinGASGalaGolemHarmonyIOSTIndian RupeeInternet ComputerKeep NetworkKyber NetworkLitecoinLivepeerLoopringMakerMetalNEMNEONKNNanoNumeraireOmiseGOPax DollarPolkadotPolygonPower LedgerQuantstampQuarkChainRepublic ProtocolRequestRippleShiba InuSolanaStatusStellarStorjSushiSwipeSynthetix Network TokenTerraTetherTezosThe GraphThe SandboxTheta FuelTheta NetworkTronTrue USDUSD CoinUniswapVeChainWavesZilliqaaelfdistrict0xiExec RLCyearn.finance

Bought onCurrent Value Buy

Pick the best companies to invest

BECOME AN ETPRIME MEMBER

Source

Updated: 02/17/2022 — 19:00