The days of waiting in line to buy or sell gold may soon be over. While Bitcoin (BTC) has been heralded as “digital gold,” related innovations in blockchain technology are quietly shifting the paradigm of physical gold ownership. By leveraging this new technology, Tether Gold (XAUT) and other gold-backed stablecoins are fulfilling the economic purpose of physical gold ownership while overcoming many of the traditionally associated challenges. With a quickly growing market cap of approximately $86 million, XAUT has eclipsed PAX Gold (PAXG) to become the most widely held and circulated gold-backed stablecoin.
By embedding legal title to specific allocations of authenticated physical gold into a digital token, this highly innovative class of products combines the best of three distinct worlds:
(1) Direct exposure to the price of physical gold.
(2) The cost-efficiency and accessibility of traditional financial assets, such as ETFs.
(3) The transactional utility of a digital token.
Before gold-backed stablecoins, only the largest investors could avoid making stark trade-offs between (1) and (2) above. Everyone wants direct exposure to the price of physical gold, but at what cost? From the burden of securing physical storage and transportation to the added friction of purity-testing and low divisibility, it is easy to see how direct exposure has become prohibitively expensive for most investors. Unable to harness economies of scale, these investors are then priced out of physical ownership and priced into a synthetic proxy.
But margarine is not butter. Without traceable allocation to specific, authenticated and securely vaulted physical gold, these synthetic gold-based financial products can never amount to the real thing, no matter how popular they become. Today, through technical innovation and legal design, gold-backed stablecoins have been working to harness economies of scale for everyone. Now, for the first time in gold’s long history, investors can gain direct exposure to the price of physical gold without having to overcome the traditional associated costs and challenges. Physical ownership has been democratized.