Gold-backed cryptocurrencies

Stablecoins fall into two categories: algorithmic and asset-backed. The latter are centralized and most similar to national currencies. Or at least what national currencies were until the 1970s. So backed by 1: 1 dollars or other assets with low volatility and equivalent value.

Asset backed Stablecoins can also be decentralized. In such a situation, another cryptocurrency is the security.

Cryptocurrencies are known for their very volatile prices. To prevent these fluctuations, links are made between cryptocurrencies and tangible assets. When a cryptocurrency is hedged with gold, its price becomes more stable because the price of gold is less volatile than other assets. In the times in which we operate, we encounter the phenomenon of inflation and investors are trying to protect their funds against it. It is the security of the cryptocurrency in gold that gives the possibility of such protection. And when the price of gold in the market goes up, the price of the token will go up as well. The best part, however, is that the price of the token will not fall below the price of gold. Of course, gold-backed cryptocurrencies can be handled as normal as any other coin. However, insurance can be very different — a token can be 1 ounce or just a part of it.

Gold-backed tokens use physical gold and keep them in gold reserves. Reserves are usually held by banks or external financial institutions. The storage of physical gold in such vaults is the basis for the issue of a currency that is backed by that gold. The undoubted advantage of such tokens is the possibility of dividing them into smaller parts and thus they are easy to carry, more convenient and cheaper to transport than real gold. What’s more, investing in gold-backed cryptocurrencies gives you the opportunity to use other financial products, e.g. ETFs.

Cryptocurrencies secured with gold, apart from their advantages, also have disadvantages. One of them is their fluidity. With a limited investor base and no trading on crypto exchanges, it is difficult to dispose of them when needed. The second is trusting the issuers of such a cryptocurrency because determining whether the gold in the right amount is actually deposited. And the third disadvantage, and taking into account the past, is the least likely, i.e. a collapse in the price of gold. There may be times when the value of gold will drop. Consequently, it will entail prices for gold-backed cryptocurrencies.

The most popular gold-backed cryptocurrencies are: Tether Gold (XAUT) — the largest gold-backed stablecoin today, DigixGlobal (DGX) — offering fractional tokens, Paxos Gold (PAXG) — requires a minimum purchase of $ 20.

Real estate is an investment as good as gold. They can also provide security for the cryptocurrency. By investing in this type of token, you can earn proportional profits. It turns out that blockchain reveals new opportunities for us and it is only a matter of time before the market adopts them.