As investors navigate through the volatility of the crypto markets, gold backed crypto emerges as a beacon of stability.
You’re likely wondering, ‘What is gold backed crypto and how does it differ from traditional cryptocurrencies?’
We’ll embark on a clear exploration of how these assets are pegged to the inherent value of gold, offering a potentially safer harbor for your investment portfolio. Stay tuned for a detailed journey into the realm of gold backed cryptocurrencies that investors trust.
Key Takeaways
Gold-backed cryptocurrencies combine the stability of gold with digital asset convenience, with tokens representing ownership of gold and offering low volatility investments.
Top gold-backed cryptocurrencies, such as Paxos Gold (PAXG) and Tether Gold (XAUT), are selected for their robust gold reserves, security, liquidity, and regulatory compliance, offering features such as low-cost structure, yield farming, and quick transaction settlements.
While purchasing gold-backed cryptocurrencies can be done through various platforms like Uphold and Binance following different procedures, regulation and security are vital considerations, including storage in secure vaults, regular audits, and in the case of PAXG, high-level regulatory compliance.
Understanding Gold Backed Crypto
Imagine having the steadfast stability of gold, but with the convenience and flexibility of digital assets. This is the principle behind gold-backed cryptocurrencies. Each token is backed by a specific amount of gold, such as gold bars, offering evidence of ownership for the underlying asset. Gold’s enduring value supports stability and low volatility, making it an attractive investment option..
But what happens when you want to convert these tokens back into physical gold? Certain gold-backed cryptocurrencies can indeed be exchanged for physical gold. Upon redemption, the digital tokens are typically burned and taken out of circulation, maintaining an accurate representation of the token supply in relation to the physical gold holdings. This ties the value of these cryptocurrencies to a tangible asset with a long history as a store of value, providing peace of mind for investors.
Top 5 Gold Backed Cryptocurrencies
Having comprehended the concept of gold-backed cryptocurrencies, we shall now explore the top five contenders in this field:
Paxos Gold (PAXG)
Tether Gold (XAUT)
Kinesis Gold (KAU)
Perth Mint Gold Token (PMGT)
Meld Gold by Algorand
These cryptocurrencies were chosen based on the robustness of the asset’s gold reserve, security measures, liquidity, and adherence to regulatory standards.
Paxos Gold (PAXG)
First on our list is Paxos Gold (PAXG), a cryptocurrency developed on the Ethereum blockchain. Each token represents the value of one fine troy ounce of a London Good Delivery gold bar, making it comparable to a digital gold coin. One of PAXG’s standout features is its advantageous low-cost structure. With no storage fees and the ability to be redeemed for LBMA-accredited gold bullion bars, PAXG distinguishes itself as a viable alternative to major gold ETFs.
PAXG offers investors an efficient and convenient avenue to access gold compared to traditional markets. It facilitates:
Gold possession
Transfer
Storage
Speculation
Investors can also subdivide their gold holdings and experience quicker settlement times. Furthermore, PAXG can be traded as futures with the flexibility to engage in either perpetual or quarterly contracts on select exchanges, making it accessible to a broader spectrum of investors.
Tether Gold (XAUT)
Next up is Tether Gold (XAUT), a cryptocurrency that offers investors the chance to directly track the price of physical gold. It provides a reliable and safe method for both individuals and institutions to invest in gold without needing to own the physical metal. Here are some key features of Tether Gold:
It enables yield farming on different platforms.
It facilitates easy divisibility and redemption for physical gold.
It establishes a direct connection to the gold market prices.
XAUT token holders possess distinctive ownership rights. Each XAUT token signifies ownership of one troy ounce of gold, distinguished by its unique serial number, purity, and weight and securely stored in a vault in Switzerland. This gives token holders the opportunity to exchange their digital tokens for physical gold.
Kinesis Gold (KAU)
Kinesis Gold (KAU) represents a type of cryptocurrency that’s backed by physical gold. Each unit of KAU represents 1 gram of physical gold, securely stored in fully insured and audited vaults under the owner’s name. Kinesis offers a multi-tiered yield system that incentivizes users through activities like holding and spending gold, contributing to a sophisticated yield structure.
KAU’s multifunctionality is appreciated for its complex yield system and the advantage of zero storage fees. Plus, the minimum quantity of gold eligible for redemption with Kinesis Gold is 100 grams, making it a flexible option for investors.
Meld Gold by Algorand
Concluding our list is Meld Gold by Algorand, a token backed by gold and designed to enable real-time gold transactions, thereby addressing the volatility and slow transaction issues often associated with acquiring physical gold. Meld Digital Gold Certificates are supported by physical gold, guaranteeing the presence of tangible gold to uphold the value of each certificate. This sets Meld Gold apart from other gold tokens in the market.
Investing in Meld Gold by Algorand offers the potential to safeguard investors from significant inflation in mainstream crypto markets and provides the benefit of eliminating the slow transaction times that are often encountered in the physical metal market.
How to Purchase Gold Backed Crypto
So, what are the avenues to procure these gold-backed cryptocurrencies? Some recommended platforms include:
Uphold
DigixGlobal (DGX)
Tether Gold (XAUT)
Paxos Gold (PAXG)
Goldcoin
Meth Gold
tGOLD (TXAU)
tSILVER
tPLATINUM
Kinesis Gold (KAU)
These platforms provide the capability to acquire gold-backed cryptocurrencies.
To purchase on Uphold, choose your funding source from a range of options including banks, cards, or existing crypto wallets. Following this, you can proceed to purchase the gold-pegged cryptocurrencies of your preference.
Gold Backed Crypto Regulation
Regulation constitutes a significant aspect to contemplate in cryptocurrency dealings. Regulation of gold tokens is influenced by the issuer and jurisdiction. Each has its own specific laws and requirements.
For example, Pax Gold (PAXG) is recognized for its high level of regulatory compliance as it is overseen by the Paxos Trust Company, which is regulated by the New York State Department of Financial Services.
Earning Yield with Gold Backed Crypto
Beyond purchasing, earning yield with gold-backed tokens is possible on DeFi platforms by contributing liquidity to decentralized exchanges like Uniswap. You can engage in liquidity pools like PAXG-WETH or PAXG-USDC.
However, it’s important to bear in mind the risk of impermanent loss. This can occur when the price of assets in a liquidity pool changes, and the distribution of assets becomes unbalanced. The rebalancing process in DeFi liquidity pools for gold-backed tokens is automated, triggered by fluctuations in the price of gold.
Pax Gold (PAXG) and Tether Gold (XAUT) are widely regarded as the most optimal gold-backed stablecoins for earning yield in DeFi.
Storage and Security of Gold Backed Crypto
Storage and security constitute critical considerations for gold-backed cryptocurrencies. Recommended methods for storing gold-backed cryptocurrencies include:
Securing the gold in reputable vaults
Conducting regular audits to verify its existence
Opting for tokens backed by gold held in exceptionally secure and insured vaults.
Issuers guarantee the security of the gold they store to back their cryptocurrencies by utilizing secure vaults, such as Fort Knox, and employing cold wallets to safeguard the private keys associated with the gold-backed cryptocurrencies.
Several secure storage options for physical gold stored as gold-backed cryptocurrencies include GoldBroker, which has vaults in New York, Canada, Singapore, and Switzerland, as well as other offshore vaults.
Blockchain technology further enhances the security of gold-backed cryptocurrencies by facilitating the conversion of underlying physical gold into trackable digital assets, offering secure storage choices, and reducing cost and transaction times.
Real-World Use Cases for Gold Backed Crypto
What are the practical implications of this in the real world? Gold-backed cryptocurrencies have practical applications in investment, trading, and hedging against inflation and market volatility. They provide a reliable store of value, securing the token’s value amidst digital market fluctuations. Their value is tied to the market price of gold and can be used for transactions similar to other cryptocurrencies.
Gold-backed cryptocurrencies offer several benefits:
They provide stability and maintain or potentially increase in value during periods of economic uncertainty.
Their gold backing makes them less volatile than traditional cryptocurrencies.
They offer a digital representation of the precious metal.
Risks and Considerations
As with any investment, gold-backed cryptocurrencies come with specific risks and considerations. Counterparty risk pertains to the dependence on the issuer or custodian of the tokens to maintain the associated physical gold. This risk encompasses issues of trust, the absence of tangible collateral, and apprehensions about the secure storage and verification of the actual gold reserves.
Storage and transaction fees also have a significant impact on the value of gold-backed cryptocurrencies. Here are some key factors to consider:
Storage fees may diminish the overall value due to ongoing costs.
The absence of transaction fees can enhance cost-effectiveness and consequently increase the value of these cryptocurrencies.
Trust in auditors and custodians is another crucial element. Consistent, transparent audits and secure storage facilities are essential for upholding investor trust.
Summary
In conclusion, gold-backed cryptocurrencies offer an exciting avenue for investment, combining the stability of gold with the versatility of digital assets. Whether you’re an experienced investor or a newcomer to the world of cryptocurrencies, these unique assets offer a wealth of opportunity.
Remember, the key to successful investing lies in understanding the market, staying informed about regulatory developments, and carefully considering risk factors. As with any investment, it’s essential to do your homework before diving in.
Frequently Asked Questions
Is any crypto backed by gold?
Yes, there are multiple cryptocurrencies that are backed by gold, such as Tether Gold, DigixGlobal, and Paxos Gold, among others. It is also important to note that there are cryptocurrencies backed by fiats like the US Dollar.
Is XRP backed by gold?
No, XRP is not backed by gold or any other tangible asset. Its potential as a global payment currency makes it a significant player in the world of digital assets.
What stablecoin is tied to gold?
The stablecoin tied to gold is Tether Gold, also known as XAUT. It is a gold-backed stablecoin pegged 1:1 to the price of gold and represents ownership rights to specific gold bars stored in vaults.
How can you earn yield with gold-backed cryptocurrencies?
You can earn yield with gold-backed cryptocurrencies by providing liquidity to decentralized exchanges like Uniswap on DeFi platforms. This allows you to generate returns on your investment.
What are the risks associated with investing in gold-backed cryptocurrencies?
Investing in gold-backed cryptocurrencies carries risks such as counterparty risk, storage and transaction fees, and reliance on auditors and custodians for trust. Be cautious of these factors before making any investment decisions.
