Will Gold-Backed Tokens Become the New Stablecoin Standard?

Paigambar Mohan Raj
Source: Best Stocks

A new kind of cryptocurrency that thrives on risk is outshining a market that is crippled by war and inflation. Gold-backed coins are replacing traditional “stablecoins,” which are normally pegged to the dollar to reduce volatility. 

Pax Gold (PAXG) has increased by 7.4% in 2022, while Tether Gold has increased by 8.5%. Bitcoin (BTC), on the other hand, has lost nearly 13% of its value, while Ethereum (ETH) has dropped 20%.

According to Everett Millman, the chief market analyst at Gainesville Coins, 

“One of the main concerns that a lot of people who are new to crypto have is that it’s not backed by anything. It just gets on a screen. So attaching them or linking them to a real-world commodity, it does make some sense.”

It is not surprising that gold, a classic hedge against geopolitical turmoil and inflation, is becoming more popular. However, the desire for gold-backed cryptocurrencies is very recent. 

How can gold become the new stablecoin standard?

With inflation hitting all-time highs, the US dollar is significantly losing its value and its foothold in global geopolitics. More and more investors are inclining towards gold, and gold-backed securities. 

According to Paolo Ardoino, Tether’s chief technology officer, Tether Gold has been boosted by larger investors, including “whales” with $1 million or more in cryptocurrencies, who are utilizing the token to convert a portion of their holdings into gold.

Aroino said, 

“Many of our investors were already involved in crypto, but were interested in not having their entire wealth in cryptos or in dollars, and were seeking more inflation-resistant assets like gold.” 

One benefit of gold-pegged digital currencies is that the token’s baseline or minimum value will always be the same as the predetermined amount of gold. If the digital currency becomes popular, the coin’s price may rise above its value. In this approach, gold-pegged digital currencies provide insurance against a digital currency’s value plummeting.

Gold-pegged stablecoins, on the other hand, come with their own set of concerns. Although blockchain is a highly secure method of tracking digital currency transactions, these tokens raise the issue of holding a huge supply of actual gold. Before investing, investors should look into who holds the gold for a particular cryptocurrency and where it is kept. If the gold vanishes for any cause, the token’s value vanishes as well.