You Can Now Invest In Gold Through These Crypto Coins

Gold-pegged tokens: You can now invest in gold through these crypto coins

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 are gold-pegged tokens?

All pegged tokens are derivatives of an underlying asset. For example, the USDT is a blockchain-based cryptocurrency pegged to the US dollar and therefore follows its price movements. It is a ‘stablecoin’ with the fifth-largest market capitalisation in the world.

Similarly, a gold-pegged token is a derivative cryptocurrency pegged to the price of gold.

This allows investors to gain exposure to gold and trade the token without the pressure of maintaining close custody. These tokens also eliminate other ancillary hassles such as transportation, asset transfer, and liquidity issues. These are similar to ETFs and derive their value from gold futures as well as Contract for Differences (CFDs).

Futures are contracts to buy/sell an asset at a predetermined price at a specified time in the future.

On the other hand, CFDs are contracts that obligate sellers to pay the difference between the contract value of the asset and its current value at a given time in the future.

Both these derivatives enable investors to benefit from price movements without actually owning the asset involved. Now, let us take a look at the two most popular gold-pegged crypto tokens.

Top gold-pegged cryptocurrencies:

While there are other crypto tokens pegged to gold, the most well-known are the two we will talk about. Both have a reputable history and high enough trading volumes to get our attention. Moreover, the other currencies have neither been backed by websites nor have they delivered substantial returns, which suggests suspicious activity.

1. Paxos Gold (PAXG)

Launched by the developers of the Paxos Standard in September 2019, the PAXG token is powered by the Ethereum blockchain and follows the ERC-20 standard.

Paxos Gold aims to add tradability to gold. This is because gold is not easily owned and is difficult to transport. Hence, a linked crypto token that can be traded on crypto exchanges could eliminate the need for physical ownership.

According to the Paxos Gold white paper, the primary goal of PAXG is to enable investors to get exposure to gold in much smaller quantities as compared to buying the minimum units available in the physical market. This token can be fractionalised up to 18 decimal points, making it accessible to a host of new investors who could not invest in the yellow metal earlier due to the high minimum ask price of physical gold.

The project whitepaper also states that each PAXG token “represents one fine troy ounce of physical gold from a specific serialised gold bar.” This means that if one were to own enough PAXG tokens, they could have their crypto exchanged for a real bar of gold.

The Paxos Trust Company, which has issued the PAXG tokens, is a financially regulated organisation by the New York State Department of Financial Services (NYDFS) and is a certified custodian. This adds an extra layer of safety to your investment.

The PAXG token is currently (as of 1745 hrs on March 9) trading at $2,015.7 on CoinMarketCap, up about 32 percent since its inception in September 2019. It has delivered 16 percent growth over the last 1 year. Its current market capitalisation stands at $588 million and has a 24-hour trading volume of $166 million. It can be traded on Binance, Uniswap, FTX, KuCoin, and Kraken.

2. Tether Gold (XAUt)

Launched in 2021 by TG Commodities Ltd, Tether Gold is the developers’ second-most popular crypto token after the stablecoin USDT. The XAUt is also an ERC-20 token, with each unit representing “one troy fine ounce of gold on a London Good Delivery bar.”

These can be fractionalised up to 6 decimal places, which means one can invest in as little as 0.00001 troy ounces of gold.

XAUt holders can also have sole ownership of specific gold bars, identifiable through their serial numbers, purity and weight. The official documentation suggests that token owners can access these details through the website as they are linked to wallet addresses.

A requisite amount of XAUt tokens can also be exchanged for physical gold as users go through a comprehensive verification process by TG Commodities Ltd.

The XAUt token is currently (as of 1745 hrs on March 9) trading at $2,017.4 on CoinMarketCap, up about 27% since its launch in 2021. Its total market capitalisation stands at $213 million with a 24-hour trading volume of $10 million. It can be traded on FTX, Bitfinex, and Uniswap.

Out of the many gold-pegged tokens in existence, these are the only two with sufficient liquidity and market capitalisation to be well-reputed.

Benefits of gold-pegged tokens:

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 of gold-pegged tokens:

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.

This news is republished from another source. You can check the original article here

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