Gold-Backed Crypto Tokens And Their Quest To Become Mainstream

The pandemic has completely changed the narrative around our lifestyle. Nerds used to be criticized for staying at home too much and have now been praised for “staying at home, saving lives.” Things have surely changed because of COVID-19, and some elements of our radical lifestyle changes might stay permanently. The cryptocurrency market is one of the industries that successfully benefited from these radical changes (at least, so far).

And among altcoins in the crypto space, there’s one thing that is considered unique and poised to reap all the benefits in the long term. Yes, it’s the fact that the cryptocurrency market has its own gold-backed token. It works exactly like stablecoins, but the valuation is pegged to physical gold instead of stablecoins. Think of USDT or DAI but with valuation equal to 1 ounce of gold.

The idea sounds great, right? But how successful are they? Well, let’s analyze them together.

PAXGold and Tether Gold

Two of the biggest candidates in this field are definitely PAXGold (PAXG) and TetherGold (XAUT). Both of them have more or less the same price as they are pegged to physical gold. Both of them also have the same mechanism regarding how they can “guard” their price to the gold. 

They use the same concept to stablecoins. Unsurprisingly, both companies (Paxos and Tether) already have huge experience with stablecoins. Paxos has its own stablecoin PAX and they also manage Binance USD (BUSD). On the other hand, Tether literally owns the biggest stablecoin in the world, USDT.

In their gold token, it’s the same. People can redeem their PAXG or XAUT tokens to get real physical gold in the gold vaults that partner with these companies. On the other hand, people storing physical gold to the companies will be able to mint these gold-backed tokens. 

The Benefits Of Gold-Backed Tokens

You might be wondering, what are the benefits of these gold-backed tokens compared to the real physical gold that you can store in your own house? Well, as mentioned earlier, the pandemic has changed much of our lifestyle. Many stores that used to sell gold no longer operate. It’s also much harder to find buyers of your physical gold in a crisis like this. However, if you own PAXG or XAUT, everything is suddenly easier because you do everything online.

If you want to buy them, just buy them online. If you want to sell them, you can also sell them on the secondary market in crypto exchanges. It’s very easy to do everything online, as you will always find buyers for your gold-backed tokens. There’s no fear of local quarantine rules and all that as you will interact with international demand and supply.

Compare it with physical gold that you have to store in your home. It’s probably harder to sell it now until the economy recovers. If you live in certain countries or cities, it’s also hard to buy them from retail stores as many businesses have chosen to close shop in the past few months.

Can These Tokens Become Mainstream?

But one thing that has come to my mind is this. Despite the fact that the gold price has been going up, most people are still not buying the idea of gold-backed crypto tokens. There is not too much demand for PAXG or XAUT or other gold-backed tokens. There are several potential reasons. First of all, crypto traders are known as one of the wildest speculators in the world. They will chase bigger gains in altcoin market because it’s definitely more volatile than the gold price.

Secondly, most people who hedge their money in gold still prefer to buy real physical gold because of the old belief “you don’t own it if you can’t touch it”. This is very understandable. You never know what’s going to happen with these companies (Paxos or Tether) and whether you will always be able to redeem those tokens or not.

And due to these facts, PAXG and XAUT and DGD and other gold-backed tokens are still not mainstream yet. Can they ever become mainstream? Well, the potential is there, especially in the year of pandemic, but the fact that it hasn’t happened yet probably indicates that it might never will.

It’s interesting though to see that people’s interest in them is slowly growing.