Why Tokenized Gold Is Booming as Spot Gold Breaks Records
As digital currencies and conventional belongings are converging, gold-backed crypto tokens have emerged as a unique investment vehicle. Also referred to as “tokenized gold,” these belongings mix the soundness of gold with the pliability of blockchain expertise.
As the price of gold continues to hit new all-time highs, the demand for gold-backed tokens has elevated. Blockchain analytics platform Lookonchain lately posted on X that two crypto whales purchased greater than $30 million value of Tether Gold (XAUt) over the previous week.
Alex Tapscott, CEO of CMCC Global Capital Markets, advised Cryptonews that as gold continues to interrupt $4,000, tokenized gold volumes will possible skyrocket.
“The complete quantity of tokenized gold is about $3 billion—up from lower than $500 million at first of this 12 months—and day by day volumes are over $600 million,” Tapscott stated.
He added that gold-backed tokens have become the fastest-growing category of tokenized assets to date. This is spectacular, as Galaxy Digital predicts tokenized belongings will hit $1.9 trillion over the following 5 years.
What Are Gold-Backed Crypto Tokens?
Alex Melikhov, co-founder of digital asset administration agency BrettonWoods, advised Cryptonews that gold-backed cryptocurrencies are digital tokens whose worth is straight tied to bodily gold held in reserve.
“Each token represents possession of a hard and fast quantity of gold, usually one troy ounce or a fraction of it,” Melikhov stated.
He elaborated that the bodily gold is usually saved by an authorized custodian, whereas the issuer of the gold-backed forex holds authorized possession. The issuer, in flip, commits to redeeming an equal quantity of gold upon presentation of the forex.
Given the unstable nature of cryptocurrency, Melikhov believes that gold-backed tokens may appeal more to conservative investors who want stability and real-world worth help somewhat than value volatility.
“Gold has a 5,000-year monitor document as a retailer of worth, whereas Bitcoin and Ethereum are extra speculative,” he famous.
Melikhov added that tokenized gold provides digital comfort for conventional buyers. Benefits embrace 24/7 switch and buying and selling, together with prompt settlement, all whereas retaining the familiarity of an underlying tangible asset.
“Tokenized gold bridges the psychological hole between conventional finance and decentralized finance,” Melikhov remarked.
Examples of Gold-Backed Tokens
While the market cap of gold-backed cryptocurrency is near $3 billion, Tether Gold (XAUt) and PAX Gold (PAXG) are presently among the many top-performing gold-backed tokens available on the market.
Tether Gold, or XAUt, is a stablecoin that represents possession of 1 effective troy ounce of digital gold. Sources note that the physical gold behind XAUt is held in secure, audited vaults. This is verified by Tether, as the corporate is required to offer common proof-of-ownership and transparency experiences.
PAX Gold, or PAXG, is backed by one effective troy ounce of gold within the type of London Good Delivery gold bars. The bars are saved in Brink’s vaults positioned in London. This signifies that 1 PAXG equates to 1 ounce of bodily gold. Paxos Trust Company is the issuer of PAXG and is regulated by the New York State Department of Financial Services.
Other top-performing gold-backed cryptocurrencies embrace Kinesis Gold (KAU), Matrixdock Gold (XAUM), and Comtech Gold (CGO).
Gold-Backed Crypto Token Use Cases
One of the most effective use instances for gold-backed crypto tokens is to serve as a hedge towards inflation. For occasion, Melikhov believes that inflation persistence and geopolitical stress are pushing buyers towards onerous belongings like gold.
“Now that tokenized gold has credible infrastructure, regulated issuers, audited reserves, and entry via main exchanges, buyers are comfy holding tokenized commodities as a substitute for fiat-backed stables,” he stated.
In addition, Tapscott talked about that tokenized gold may be pledged as collateral in DeFi protocols, permitting buyers to get leverage.
“Similar to a margin mortgage in a brokerage account however on-chain—large image tokenized gold makes the gold extra helpful, fungible, and marginable,” he stated.
Additionally, as extra buyers search publicity to gold in at the moment’s digital financial system, gold-backed crypto tokens appear to be the reply.
“Holding bodily gold poses safety dangers, and it’s not simple to maneuver, retailer, or handle. Tokens are—tokenized gold democratizes gold possession,” Tapscott talked about.
Risks and Challenges to Consider
While gold-backed crypto tokens acquire traction, it’s additionally vital to level out the dangers related to these digital belongings.
For occasion, Melikhov believes that the primary challenges are custodial and regulatory. “Investors should belief that the gold actually exists, stays unencumbered, and is redeemable on demand,” he stated.
Echoing this, Illia Otychenko, lead analyst at CEX.IO, thinks belief and transparency stay a problem, noting that buyers want proof that the gold actually exists and is totally backed.
“If buyers really feel assured concerning the reserves, this might present a further enhance for the asset,” Otychenko stated.
For instance, on July 24, Tether published its Q2 attestation report confirming that XAUt was backed by greater than 7.66 tons of bodily gold. Otychenko famous that shortly afterward, XAUt started confidently surpassing each PAXG and KAU in day by day buying and selling quantity.
“Just a few weeks after that, XAUt executed the largest single-day supply expansion in tokenized gold historical past,” Otychenko added.
While transparency stays key, liquidity is yet one more problem. Melikhov identified that only some venues presently supply deep buying and selling markets for gold-backed crypto tokens.
What’s Next For Gold-Backed Crypto Tokens
Challenges apart, gold-backed crypto tokens will possible proceed to carry out effectively. This additionally relies on key basic drivers, such as expectations of future U.S. rate of interest cuts, threats to U.S. Fed independence, geopolitical dangers world wide, U.S. commerce coverage and tariffs, and authorities fiscal coverage and rising debt.
“I believe inside a few years there will be trillions in tokenized real-world assets and gold can be one of many largest beneficiaries,” Tapscott stated. “Tokenizing gold is only one of some ways wherein blockchains are bringing finance into the twenty first century.”
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