The potential overlaps between cryptocurrency and gold continue to stir debate about their respective roles in the financial sector. Gold has a reputation that precedes itself. The most pre-eminent of precious metals has been a valuable standard since the earliest human civilizations.
In the current investment scene, gold plays the useful role of a safe-haven asset. Investors can hedge a certain amount of gold as a means of portfolio diversification. It might, therefore, seem like an affront to compare gold to crypto. Cryptocurrencies like Bitcoin are synonymous with volatility, which makes traditional investors like Warren Buffet steer clear.
Still, gold can work with crypto in remarkable ways. The similarities, whether in the form of decentralization, inelastic supply, and independence from mainstream stocks, make for exciting use-cases. Add gold-backed stablecoins to the scene, and the conversation is even more engaging.
A stablecoin is a cryptocurrency whose value corresponds to a valuable asset. The valuable asset could be anything from fiat currencies to precious metals, or even oil. USDT, the current leading stablecoin, came into prominence because its value was tethered to the US dollar.
Therefore, gold-backed stablecoins use gold as their base physical asset. Stablecoins offer more stability than a typical cryptocurrency would enjoy and, as a result, they have earned credibility with investors keen on that trait.
For gold-backed stablecoins, the typical structuring is that one token of stablecoin equals one gram of gold. The stablecoin’s price cannot fall below the prevailing rates for gold at any time. The physical gold is in the hands of a trustworthy third party.
Gold-backed stablecoins leverage gold’s stability to create unique digital currencies. Traders use stablecoins to hedge against inflation, which is a distinct risk when handling cryptocurrencies. In specific ways, they can act as reserve currencies for the cryptocurrency sector.
In a real-life example, developing countries trade with each other but use established currencies like the US dollar to facilitate trade, rather than handling the unstable native currencies of their trading partners. In the same way, high-frequency traders on a crypto exchange can use a stablecoin to reduce their exposure to volatile cryptocurrencies.
Other specific uses of stablecoins include:
Gold-backed stablecoins have off-chain physical gold to back up their native blockchain tokens. This detail is the common thread for gold-backed coins and is the reason behind their stability. Here are some notable entities in this field:
Digix is a notable gold-backed stablecoin from Singapore. The company uses blockchain technology to offer DGX tokens with gold backing. Digix has two types of tokens of offer: Digix Gold (DGX) and Digix DAO (DGD). Each DGX token equals one gram of gold.
The platform uses a unique protocol called PoA (Proof of Asset) or PoP (Proof of Provenance) to ensure smooth transactions. Digix places LBMA-approved gold bullion in its Safe House vaults to guarantee the exchange rate.
Therefore, Digix uses a real asset (gold), transfers its value to the blockchain, and evenly distributes shares among participants. Token owners participate in the platform’s development and can also exchange tokens for gold or any other coin.
Since the tokens are in the Ethereum EIP20 format, investors can also use them for Ethereum contracts. Digix outsources auditing to French certification company Bureau Veritas every three months. With a proven track record since it began operation in 2016, Digix has a prominent position among those who provide asset stablecoins.
GoldMint is a Russian blockchain platform that issues stablecoins backed by 100% physical gold or exchange-traded funds (ETFs). The founders have a wealth of experience in the gold processing industry.
GoldMint founders have connections to an extensive pawnshop business in Russia. A core component of gold ownership is smallholders in items like jewelry. Pawnshops are, therefore, a key conduit for gold movement because of gold’s universal acceptance.
The platform issues two native tokens: Gold and the MINT tokens. Gold is an investment token with full physical gold backing. A Gold token has the value of an ounce of gold by international standards. The GoldMint platform uses a private blockchain and graphene technology.
GoldMint relies on an automatic diagnostic system in its Custody Bot to process information. The information ensures the MINT blockchain issues the correct amount of Gold tokens. Masternode operators earn commissions for every transaction of the MINT blockchain. Owing to the widespread pawnshop access, GoldMint exceeded 5,000 kg of scrap gold trading annual turnover in less than two years of trading gold tokens.
Swiss startup Eidoo launched its gold-backed stablecoin in late 2017. The Ekon Gold stablecoin came soon after that. This token is ERC-20 compliant, and is tradable on the decentralized hybrid exchange of the project.
Ekon founders made it so that traders could only exchange Ekon for one gram of 999 gold in a special store in Switzerland in insured safe deposit boxes. An independent auditing company, PluriAudit SA, audits the platform every quarter.
Compared to some others, this company is more limited and more precise in its operations. Despite this, Eidoo raised $27.9 million during its token sale in October 2017 and gained a license from Swiss regulators. The company is keen to comply with AML regulations and complete the KYC procedure up to Tier 2.
Tiberius is yet another Swiss stablecoin. Its mother company, Tiberius Group AG, announced the issue of Tiberius tokens in September 2018. Tiberius tokens offer high stability as they boast the backing of a basket of seven precious metals, including gold. This platform is still in its formative stages of operation but is already attracting investor interest.
Just like Ekon Gold, Tiberius ensures its operations are on the right side of the relevant Swiss laws. The platform has delayed the sale of Tiberius Coin.
CEO Giuseppe Rapallo attributes this delay to the desire for more diversification, in order to make the coin even more stable. This coin is looking to anchor its value to a wide range of stable assets.
The OneGram project aims at ensuring that each token has the backing of at least one gram of physical gold. The choice of gold is deliberate because gold is one of six Ribawi assets that can be freely traded across the Muslim world.
The context is important because the UAE is an Islamic country. Making the coin Sharia compliant will endear it more widely to the native population. OneGram relies on a Proof of Stake (PoS) blockchain to facilitate fast transactions.
Notably, it features a democratic community of OneGram stakeholders who elect delegates and validators. In summary, the coin combines the stability and reputation of gold, the convenience of cryptocurrency, and Sharia compliance. OneGram can be the key that opens up the Arab and South Asian markets to cryptocurrency.
Novem Gold is the final installment in this illustrious list of gold-backed stablecoins. This unique platform stores gold securely in Liechtenstein, which has suitable legal and security arrangements to operate seamlessly.
Novem Gold has two types of tokens: the NNN and NVM tokens. Each 100 NNN tokens correspond to a gram of gold in the company’s storage facilities. Token holders have a convenient platform to trade gold digitally. Traders have the assurance of a stable gold-backed token, which complies with a specific value ratio.
Novem Gold founders have tremendous experience in the precious metals trade. Investors can have digital ownership of LBMA-certified physical gold. Anyone can tokenize their gold at the brick-and-mortar stores Novem Gold intends to open in a number of major European cities.
To ensure that the ratio of NNN tokens to gold remains correct, Novem Gold has partnered with respected auditor Grant Thornton to carry out quarterly audits. Novem Gold conducts regular token burns to ensure the scarcity ratio is intact.
Given the fact that cryptocurrency is a very volatile asset, a stable crypto monetary system seems like a lofty ambition. Gold-backed stablecoins have the potential to change this narrative completely. Anyone with a knowledge of finance knows the reliability of gold as a store of value.
Therefore, backing crypto with a tangible asset like gold offers a viable option to those who are wary of crypto’s volatility. You can enjoy the luxury of not having to store or transport the bulky precious metal.
Investing in a gold-backed stablecoin like Novem Gold’s NNN token is safe and reliable. Whether for protection against other volatile coins or to store value, this stablecoin covers it all.