Tether’s Gold Rush: Stablecoins Modernizing Precious Metals Investment
Gold is becoming more mainstream with the help of blockchain technology.
With global instability on the rise, safe-haven assets such as gold have become increasingly attractive, while high-risk, high-reward cryptocurrencies such as Bitcoin are proving to be too volatile for investors with a low appetite for risk.
Hence the rise in popularity of stablecoins such as Tether Gold (XAUT), launched in 2020 by Tether.
The company is now one of the world’s largest non-sovereign owners of physical gold reserves, and has taken stakes in a number of gold companies, raising questions about its impact on the yellow metal moving forward.
What is Tether?
Tether is the most dominant player in the stablecoin market.
Stablecoins are a type of cryptocurrency designed to maintain price stability. This is done by pegging each token to a reserve asset, such as a fiat currency (e.g. the US dollar) or a commodity (e.g. gold).
For example, Tether’s USDT token has a 1:1 US dollar peg, meaning 1 USDT is equal to US$1; each unit is backed by reserves held by Tether, primarily in the form of cash equivalents and US treasury bills. With a circulating supply of 189.8 billion, the dollar-backed USDT is by far the largest stablecoin by market cap.
The USDT token can move across various blockchains (e.g. Ethereum, Tron, Solana) and is traded on nearly all major crypto exchanges, including Kraken, Coinbase Global (NASDAQ:COIN) and the Bitfinex exchange.
Tether Gold stablecoins
Gold-backed stablecoins like Tether Gold or Paxos Trust Company’s PAX Gold are a bridge between traditional precious metals and digital assets. They allow holders to own digital tokens that are redeemable for physical gold.
Each Tether Gold stablecoin is fully backed 1:1 by one fine troy ounce of gold on a physical bar of gold that meets London Bullion Market Association standards for Good Delivery.
This means verified holders of XAUT have the right to redeem their tokens for physical gold. The value of this digital version of gold bullion tracks price movements within the global gold market.
Besides being a vehicle for wealth preservation, Tether Gold has many real-world applications, including: collateral for loans or borrowing other stablecoins like USDT; earning passive interest via lending on decentralized platforms; quick cross-border money transfers that bypass traditional banking; and everyday ecommerce and trading.
Traded on the same exchanges as the USDT token, there are roughly US$3.3 billion worth of Tether gold tokens in circulation backed by 22 metric tons of physical gold, Reuters reported in early May.
Gold stablecoins and the CLARITY Act
In comparison to fiat-backed stablecoins, gold-backed stablecoins may have an advantage if the Digital Asset Market Clarity (CLARITY) Act passes and becomes law in the…
