Gold-backed stablecoins are outperforming the markets as the precious metal continues to rally.
The commodity has climbed 9.7 per cent so far this year, and has reached an all new high of USD$2,880 per ounce.
PAX Gold and Tether Gold have greatly benefited from the rise in precious metal prices, both increasing roughly 10 per cent in line with the spot price of gold. Each token is backed by one troy ounce of gold stored in a vault.
In the traditional market, gold miners’ stocks have surged as well. The VanEck Gold Miners ETF, which tracks gold miners, has risen nearly 20 per cent this year, outperforming the S&P 500.
This price action has led to an increase in the supply of these tokens, with token mints outpacing burns by millions of dollars each week. Transfer volumes for gold-backed cryptocurrencies, according to RWA.xyz data, have surged more than 53.7 per cent month over month.
Gold’s price has risen this year due to tariff threats from both the U.S. and China, the Spring Festival holidays in China, and a broader trend of growing demand. Last year, demand for the precious metal reached 4,945.9 tons, worth approximately USD$460 billion, according to the World Gold Council.
Meanwhile, most major cryptocurrencies have struggled this year. Bitcoin has seen a modest 3.6 per cent rise. This has pushed the bitcoin-gold ratio to a 12-week low, while ether has dropped more than 17.6 per cent.
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The value of a gold backed coin is tied to the price of gold
Gold-backed stablecoins are a type of cryptocurrency that combine the benefits of gold with the versatility of digital assets. These stablecoins are pegged to a fixed amount of gold.
The value of a gold-backed stablecoin is directly tied to the price of gold, offering a stable store of value that is less volatile than other cryptocurrencies like Bitcoin or Ethereum.
Creating a gold-backed stablecoin involves a blockchain platform issuing the coin. After which, the coin is then backed by an equivalent amount of gold held in reserve. This gold is typically stored in secure vaults. Meanwhile, the reserve is independently audited to ensure transparency and verify that the gold backing the stablecoin exists and is accessible.
For each coin issued, a corresponding amount of gold is kept in a reserve. That way the coin is always backed by physical assets.
Users can exchange these stablecoins for gold or fiat currency, depending on the platform’s rules. The stablecoin’s price remains stable because it is tied to gold, which has historically been a reliable store of value. This makes it an attractive option for users seeking stability in the often volatile world of cryptocurrency.
Gold-backed stablecoins appeal to investors who want exposure to gold without the complexities of owning and storing physical gold. They also provide an easy way to transfer value across borders or to engage in decentralized finance (DeFi) applications without being subject to the price fluctuations typically associated with cryptocurrencies. However, they also require trust in the platform managing the reserves and the security of the storage solution for the gold.
