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Gold-backed cryptocurrencies
The cryptos that give new meaning to the term "gold standard".
Key takeaways
- Gold-backed cryptocurrencies mirror gold prices, offering a more stable alternative to volatile digital assets.
- Always verify genuine physical gold backing via independent audits and ensure token supply matches reserves.
- These tokens can be more volatile and less liquid than physical gold, despite easier storage and trading.
While Bitcoin and the majority of other cryptocurrencies have a value based on market dynamics like supply and demand, gold-backed cryptocurrencies have a price that is tied to a fixed amount of gold.
If the price of gold goes up or down, so does the value of the crypto.
What cryptos are backed by gold?
Here's a list of gold-backed cryptocurrencies:
- Tether Gold (XAUT)
- Paxos Gold (PAXG)
- Meld Gold (GOLD$ and GLD)
- GoldSilverCoin (AUS and AGS)
- Digix Global (DGX)
- Kinesis Gold (KAU)
Tether Gold (XAUT)
Tether is the world's largest issuer of stablecoins and now offers a gold-backed cryptocurrency as well.
Each XAUT token corresponds to a single troy fine ounce of gold on a London Good Delivery (LGD) bar – which is roughly 400 ounces per bar. LGD bars are issued by the London Bullion Market Association, while the token itself is offered by TG Commodities Limited. XAUT is an ERC-20 token and can be held in any Ethereum wallet.
Paxos Gold
US-based Paxos, which issues PAXG, is a New York State Trust Company, subject to regulatory oversight by the New York State Department of Financial Services.
All fiat and crypto customer assets deposited with Paxos, such as those backing PAXG, are backed with mandatory capital reserves.
Meld Gold (GOLD$ and GLD)
Meld Gold is issued by Australian company Meld, and its gold tokens are available on the Algorand and XRP Ledger (XRPL) blockchains.
Each Meld Gold token is backed by one gram of physical gold held in Meld's network of vaults and facilities. Meld's original MCAU token on Algorand has been retired. Meld says retired tokens are still backed and fully redeemable but are being phased out, and its current gold tokens are GOLD$ on Algorand and GLD on the XRPL.
GoldSilverCoin (AUS and AGS)
The Gold and Silver Standard are gold and silver-backed tokens, with the underlying metals held in custody by the Australian-based Gold Silver Standard Custodian (GSSC Pty Ltd).
Detailed quarterly audit reports, verifying the quality and quantity of the physical gold and silver backing, are available on the website.
You can verify that the number of AUS and AGS tokens in circulation matches the respective gold and silver holdings of GoldSilverCoin.
How to evaluate gold-backed cryptocurrency
The best gold-backed cryptocurrency is one that you are certain is genuinely backed by gold and that you can redeem for physical gold when needed.
The exact procedures for validating a coin will vary between projects. For example, sometimes you might take it as a matter of trust that a coin is genuinely backed based on the reputation of its issuer, while other times you might want to do a thorough check via independent auditors.
But generally, to validate the backing of a gold-backed cryptocurrency, you can:
- Confirm that the cryptocurrency is backed by physical gold: To verify the gold backing of a cryptocurrency, you can look for independent third party audit reports or other documentation, and then contact the auditor to confirm that the documentation is genuine.
- Confirm that the gold backing matches the amount of coins in circulation: Once you're convinced that there really is gold backing the tokens, you can look at the token contract on the blockchain to see how many coins there are in circulation and confirm that it matches the gold held in reserve.
How do I redeem gold-backed cryptocurrency for physical gold?
The procedures for redeeming a gold-backed cryptocurrency for physical gold will vary but there are two main options you might encounter.
- Redeeming for physical gold. In cases where a gold-backed cryptocurrency can be directly redeemed for physical gold, you will typically have to pass AML/KYC procedures and the gold can then be shipped to the specified mailing address.
- Redeeming for gold derivatives.In other cases, you can redeem the tokens for recognised gold derivatives. These derivatives either track gold prices or can themselves be redeemed for physical gold.
What is gold-backed cryptocurrency used for?
Gold-backed cryptocurrencies are often regarded as a type of stablecoin, prized for the way they tend to mirror the market price of gold.
However, their ability to mirror gold prices is only as strong as the extent to which they can be redeemed for gold. If it's difficult or expensive to redeem, a gold-backed cryptocurrency might deviate from gold prices.
Plus, gold and gold-backed cryptocurrencies are both still subject to their own separate market forces.
Compared to gold itself, gold-backed cryptocurrencies may be traded on lower liquidity markets, so even if they broadly mirror gold prices, they can still be much more volatile.
Pros and cons of gold-backed cryptocurrency
Pros
- Stable. Legitimate gold-backed cryptocurrencies mirror gold prices and are much more stable than most other cryptocurrencies.
- Reliable store of value. People who are worried about inflation or the security of fiat currency may prefer to store their value as gold.
- Allows access to blockchain apps. Tokenising gold on the blockchain lets you use gold across blockchain applications, to trade it, spend it as money and more.
- Easier to store and sell than gold. Purely digital gold tokens are typically easier to store and sell than physical gold.
Cons
- Less stable value than gold. Gold-backed cryptocurrencies are often more volatile than gold itself.
- Disreputable projects are common. Many gold-backed cryptocurrency projects are either lying about their backing or are outright scams.
- Requires some trust. Even the most honest and transparent gold-backed cryptocurrencies require some kind of trust between you and the token issuer.
- May involve fees. The costs of physical gold custody or other expenses may be passed on to users in the form of additional fees.
- Limited liquidity and exchange availability. The availability and liquidity of gold-backed cryptocurrencies on exchanges may be limited.
Where to buy gold-backed cryptocurrency
All of the exchanges in the table below offer gold-backed cryptocurrencies, or similar gold-backed products.
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Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly
volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of
future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.
You should also verify the nature of any product or service (including its legal status and relevant regulatory
requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.
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Trying to buy Gldgov , not easy for folks just entering crypto. Any suggestions
Hi Tony,
According to CoinGecko, you can trade Gold DAO (GLDGOV) on the LBank exchange, or via decentralised exchanges including Sonic, ICPSwap and ICDex.
If you don’t have experience with using crypto wallets, it might be more straightforward to sign up for an account with LBank and buy GLDGOV there.
You can learn more about decentralised exchanges here.
Regards,
Tom