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Home DeFi News Gold-Backed Stablecoins: Why is Digital Gold Better Than Physical?

Gold-Backed Stablecoins: Why is Digital Gold Better Than Physical?

  Gold has been a symbol of wealth far longer than cryptocurrency. The first record of of gold was thanks to the Egyptians in 2600BC, whereby Egyptian Hieroglyphs describe gold as being “more plentiful than dirt”.

 Times changed, and in 700BC the Lydin merchants produced the first coins. These were 63% gold and 27% silver, stamped and labelled as electrum.

 Although it has always been used for jewellery, a store of value and a means of exchange, it is also useful for dentistry, electronics and medals. If the price was based on the utility alone, it would be far cheaper than current prices.

bullion-gold-history

 Looking at the charts, gold may look like it has gained a lot of value over the years, however if you compare it to the rate of inflation, it works best mostly to preserve your purchasing power. A look at the stock markets against the Dollar shows that the price has been on a bull run most of the time. Upon closer inspection, if you switch the denominator from USD to gold, it paints a different picture.

 This is why some experts say that one should keep a small percentage of their portfolio in gold, as it can work as a hedge against crashes, inflation and a tangible means of exchange if SHTF.

 Drawbacks of gold

There are a few different ways to ‘own’ gold. You can either:

  • Keep it on your persons; in your house or at a place of residence
  • Pay a third party (bank or independent storage facility) to store it for you
  • Buy a gold ETF

The issue with owning it outright, is the chance you can robbed by someone who may or may not know that you own gold. The problem with allowing a 3rd party to hold your gold is that the time you may need to access your gold, may be the time you can not retrieve it. If either 3rd party option goes bust, your gold can just ‘disappear’.

 The problem with an ETF is the roll-over premium. You can lose money over the long term because it will cost you in fees or premiums.

defi-gold-stablecoin

The modern gold solution

As we know with cryptocurrency, it is a way for you to own an asset without any 3rd party involved, other than to purchase or sell it if you are using a centralized exchange. From a look at our Stablecoin history and use cases, we can see how stablecoins are a perfect use case for digital assets.

 The benefits of holding a stablecoin backed by gold are:

  • There is no roll-over fee
  • You will be able to store it on your ledger
  • It takes up no physical space
  • You are more likely to be protected against inflation

With a 9 trillion market capitalization in gold currently, even if a small percentage of physical gold holders migrate over to digital gold, it would look massive on paper, in relation to other cryptocurrency projects.

Judy Shelton has recently been approved to a seat on the Federal Reserve Board of Governors. She has been known for her advocacy for returning to the gold standard. In a recent interview, she states, “I don’t see it so much as returning, but back to the future”, later on in the interview, “I like the idea of a gold standard, it could be used in a very cryptocurrency way”.

 There is a good chance that ‘The tokenization of everything’ movement will translate into precious metal stablecoins in a big way. If regulators and government utilize this, it could be the new way of doing things.

A few examples of gold-backed stablecoins currently on the market are Paxos Gold (PAXG), Tether Gold (XAUT), DigixGlobal (DGX) & Perth Mint Gold Token (PMGT). Read more about them here.

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