- Gold-Backed Tokens 101: How Do They Work?
- Perth Mint Gold Token (PMGT)
- Gold Coin (GLC)
- DigixGlobal (DGX)
- Meld Gold by Algorand (MCAU)
- Tether Gold (Gold)
- AABB Gold Token (AABBG)
- AurusGOLD (AWG)
- PAX Gold (PAXG)
- Final Thoughts: The Future of Gold Pegged Tokens
Bitcoin, the flagship of cryptocurrency, is often referred to as “digital gold” to indicate its utility as a store of value, but rapid price swings in its short history are concerning to would-be investors keen on exploring digital assets, but with a preference for stability.
The “gold vs. Bitcoin” debate is almost as old as Bitcoin– with Peter Schiff often taking the anti-BTC pro-gold stance. (embed to video)
Despite cryptocurrency’s growing popularity, many would-be cryptocurrency investors are swayed from buying or holding digital assets due to the industry’s volatile nature.
However, what if cryptocurrency could mimic the price of gold, while maintaining the advantages of its digital nature? What if people could leverage the benefits of holding gold without actually having to hold and protect heavy bricks of gold?
Gold-backed, also referred to as “gold-pegged”, cryptocurrencies are backed by the physical value of gold. Similar to stablecoins, most gold-backed cryptocurrencies represent a physical collection of gold custudied by the stablecoin issuer.
The following gold-backed cryptocurrency guide explores the most popular gold-pegged tokens, who is behind the project, and other pertinent information.
Gold-Backed Tokens 101: How Do They Work?
Gold-pegged cryptocurrencies are designed in a similar way to stablecoins, but rather than being backed by fiat are backed by the value of physical gold.
Gold-pegged tokens aim to prevent price fluctuations by tying the derivative asset to a tangible asset. Theoretically, the cumulative price of the tokens shouldn’t be less than the value of the physical assets
The amount of gold used to back a particular gold-pegged cryptocurrency must be held in gold reserves, which are commonly held at banks and other third-party institutions.
Gold-pegged tokens vary in how they’re backed. For example, some tokens are backed at a ratio of 1:1, in which 1 token is equivalent in value to 1 gram of gold, whereas others will use different ratios.
As the value of gold increases, so should the price of a token, making it a more stable investment than other cryptocurrencies.
Most gold-backed tokens allow investors to redeem tokens for gold, similar to how dollar-pegged stablecoins generally can be traded for their $1.00 equivalent in fiat.
There are several advantages to gold-pegged tokens:
- You can own a token with the same value as gold, without needing to physically hold gold.
- Gold’s value is less prone to price fluctuations
- It’s a more straightforward route into the commodities market
However, there are also a few disadvantages:
- Although gold can protect from the downsides, it historically doesn’t carry similar returns to cryptocurrencies as BTC or ETH.
- Market growth tends to be slower than other cryptocurrencies.
- Digital assets pose new inherent risks that the physical asset doesn’t, and are also without many of the same protections.
Gold-pegged tokens are a steady asset for those seeking stability in their digital portfolio.
To compile our list of the most popular gold-pegged tokens, we evaluated the company that created the token, the current market cap, and the unique features of each project.
Perth Mint Gold Token (PMGT)
Perth Mint Gold Token (PMGT) is one of the few cryptocurrencies validated by a government. Instead of the gold stores being held by a private company, all gold purchased at PMGT is traded and stored at The Perth Mint.
The currency is supported by physical gold blocks at a 1:1 ratio and has a market cap of $2,212,088. Buyers are given digital gold certificates every time they buy the token. These certificates can be traded for gold bullion, which can be delivered directly to their address.
During the transaction, investors are not required to pay any transaction fees. In addition to this, they don’t need to pay for storage or any ongoing management fees should they choose not to hold the gold themselves.
Gold Coin (GLC)
Gold Coin (GLC) is an ERC-20 coin developed by Digital Gold LTD. The cryptocurrency was built and is maintained by a group of volunteers who believe in the promotion of economic freedom.
It’s backed by a ratio of 1000 GLC per ounce of gold, and has a market cap of $1,807,944. When holding GLC investors have access to unique features such as two-minute confirmation speeds, making it the fastest transaction of all gold-pegged tokens.
GLC also offers an exclusive Goldcoin Wallet for any gold purchased and there are no transaction fees, making it extremely easy for investors to buy and hold their gold.
DigixGlobal is a Singapore-based company that provides gold-pegged DGX tokens. The DGX token is backed on a 1:1 ratio and has a market cap of $1,183,867. Each token represents 1 ounce of gold.
The gold is stored in both Singapore and Canada, which is a unique value add compared to other gold-backed tokens on this list; by having storage locations in two parts of the world, the risks of just having a single location are mitigated.
DigixGlobal charges a 1% fee per exchange and assumes the demurrage (shipping) fee. The only exchange you can currently buy DGX is Coinsquare, where it can be purchased with Bitcoin (BTC) or Ethereum (ETH).
Meld Gold by Algorand (MCAU)
Meld Gold was created by Algorand as a stable alternative to altcoins; it makes gold investing accessible to investors in the form of Meld Digital Gold Certificates. Each gold certificate is equivalent to 1 gram of physical gold and the market cap is unknown as of April 2022.
The tokens (certificates) are secured on the Algorand Wallet, making them easily accessible to investors who already own a wallet. Meld launched a partnership program to attract leaders in the gold, financial and technology sectors to collaborate and brainstorm the token’s future.
You can currently buy Meld at BTC Markets.
Tether Gold (Gold)
Tether built its reputation as one of the most popular stablecoins. Tether Gold was introduced in 2020 and it grew to one of the most popular gold-pegged tokens with a market capitalization of $469 million USD.
One token represents one fine troy ounce of gold on a London Good Delivery bar. The Tether Gold reserves are held in Swiss vaults and investors are required to pay a small 0.25% fee per transaction.
Tether Gold can be purchased on Coinbase.
AABB Gold Token (AABBG)
AABBG is somewhat an anomaly in the crypto space as the founding company has no prior experience in cryptocurrency or finance. Instead, AABBG was founded by Asia Broadband Inc. (AABB). AABB is a resource company focused on the production, supply, and sale of precious and base metals.
Unlike other gold-pegged tokens in which the gold comes from a range of sources, 100% of the gold purchased using AABBG comes directly from the company’s mining project. This cuts out the middleman, and ensures investors get their gold directly from the source. It then uses a unique mine-to-token gold-backing format that verifies gold assets displayed by each token.
The token has a current market cap of $97,382,859.21. It can only be purchased using an official AABB Wallet, and requires Bitcoin or Ethereum to make the transaction.
AurusGOLD, better known as AWG, is minted by gold traders who arbitrage between the AWG and bullion gold markets. It has a market cap of $1,880,988.
Each token can be redeemed for 1 gram of gold supplied from London Bullion Market Association (LBMA) certificate refineries. If investors aren’t interested in gold but have an interest in holding other precious metals, AWG has also diversified into the precious metals niche. Investors can purchase tokenized precious metals the same way they would gold and hold them in their crypto wallets.
PAX Gold (PAXG)
Pax Gold was founded by Paxos, a US-based trust company and custodian. Each token is equivalent to one troy ounce of a London Right Delivery bar of gold.
The PAXG token was launched in 2019 and is backed by gold stores in Brink’s vaults, which are approved by the London Bullion Market Association. It has a market cap of $610,389,228 and is the only gold token that investors can redeem for LBMA-accredited Good Delivery gold bullion bars.
The easiest way to buy PAX Gold is through Coinbase, where it can be bought with Ethereum (ETH).
Final Thoughts: The Future of Gold Pegged Tokens
Despite having a reputation for being one of the safer investments, owning physical gold isn’t particularly easy. It can be held in the form of physical bullions and stored at home, or holders can pay a storage facility to hold them for a fee.
Gold-pegged tokens make it significantly easier for individuals to own gold without ever needing to store it themselves.
As a cheaper and more convenient alternative, we may one day see gold pegged tokens become the new dominant form of gold ownership for a global, decentralized base of people.
However, the future of gold pegged tokens may look completely different.
For one, various decentralized finance projects and decentralized exchanges allow people to earn interest on their gold deposits in a variety of mechanisms, such as lending or through liquidity pools.
Some highly experimental projects are even creating synthetic assets that derive their value algorithmically rather than basing it on a physical deposit of assets.
While this list is by no means exhaustive (nor is it prescriptive, none of our content is investment advice, it’s important to educate yourself about the intersection between traditional finance (gold) and decentralized finance (cryptocurrency).
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