The recent Coindesk headline `Tokenized Gold Surpasses $1B in Market Cap as Physical Asset Nears All-Time Price High` caught my attention.
The $1Billion mark shoutout confused me because I was fairly confident that Gold-backed tokens surpassed the $1 Billion market cap about one year ago.
My memory did not fail me (phew). I retraced a March 2022 article I wrote `5 Gold-backed Tokens and one harsh reality` which confirmed that based on Arcane Research reporting, it was 1 year ago (March 7, 2022) that Gold-Backed tokens reached $1 Billion.
On that day, Gold was at $1,997 and at the time of publication of the recent CoinDesk, gold was hovering around $2,000.
- Over the past year, Gold has dropped as low as $1,630. Now that Gold is close again to $2,000, the market cap of gold-backed tokens is also back to $1 Billion.
- Paxos and Tether remain the largest gold stablecoins issuers with PAXG and XAUT the top two gold-backed tokens. However, last year they accounted for c. 80% of the total market cap of gold-backed tokens. Now they completely dominate the market, accounting for 99% of market cap.
- Paxos gold token market cap was triple that of the Tether Gold one year ago. However, over the past year XAUT has closed the gap by increasing its market cap nearly 2.5 times.
- In terms of daily trading volume, last year PAXG was the only gold-backed tokens that has a meaningful daily volume, around $21M per day. While Tether Gold`s daily trading volume was around 850k and all the other gold backed tokens have volumes that are around $4 or $5k. Fast forward to today, and PAXG`s daily trading volume is around $9.5M and XAUT`s is $6.5M. Liquidity as measured by daily trading volume is more balanced between the top 2 gold-backed coins.
- The entity issuing PAXG is Paxos, a regulated and legal custodian by the New York State Department of Financial Services. The PAXG gold is stored in LBMA vaults in London. The entity issuing the Tether Gold tokens is a separate entity named TG Commodities Limited. XAUt are redeemable for physical gold that is in Swiss vaults.
As I emphasized in my earlier article, Gold-backed tokens are a next-generation digital derivative (structured product) of gold. Tokenization has its advantages, but the devil is always in the detail, so pay attention to all the following before considering an investment:
- Transparency of the gold-backed token structure at every level
- The entity that issues the gold-backed token and the entity that custodies the gold
- The costs involved — storage fees, management fees, transaction fees
- The venues the gold-backed token it trades on
- The liquidity
Last year, the top two gold-backed coins were mainly trading on FTX, Binance, Kraken, and Bitfinex. According to Coinmarketcap, currently XAUT is on OKX, Bitget, Huobi, Gate.io, and BTSE and PAXG is on Binance, CoinW, Deepcoin, Bitrue, and Bybit. Another reminder, that listing matters and can be a significant factor in a token’s growth.
A Tweet that caught my attention was one highlighting the risk of confiscation of Gold from governments.
What puzzled me was it included the #XAUT hashtag, as if it could be a way to hedge against confiscation risks. Let’s be clear, if a government decides to confiscate Gold, and Gold certificates, it will also include Gold-backed tokens. Yes, you own the token in your wallet, but the underlying asset is in a physical vault and 100% traceable. The token is an IOU.
Watcher. Guru tweeted last week that we may be seeing a Gold-backed token issued by Texas.
I then realized that Peter Schiff had written about this 2 days earlier on SchiffGold.
There is legislation pending to be passed but the Bill says, effective Sep. 1 2023.
This Act takes effect September 1, 2023.
The gold would be held by the state of Texas.
Blame it on the macroeconomic conditions and the storm of events (a few forced by regulators) that have opened `a can of worms` or `a ton of possibilities`.
The Texas move will make Choke Point 2.0, look like a minor incident in the resistance by the US to adapt in a changing world order (both bottom-up and geopolitically).
I foresee a rising narrative supporting the need for CBDCs backed by a basket with Gold and other commodities. The media war against this will be brutal, as it threatens the monopoly of monetary policy from Central Banks (the ones of the current reserve currencies) and is closely tied to the polarized geopolitics.
ChaGPT knew nothing about all of the above. It had no opinion on the legality of a state-issued gold-backed token. The only useful information it provided during my research to write this article, was that in the US there are at least two legal community currencies (of course with restricted issuance based on state laws):
- The BerkShares currency has been in circulation in the Berkshires region of Massachusetts since 2006. This currency is accepted by over 400 local businesses and is exchangeable for US dollars at participating banks.
- The Ithaca Hours currency, has been used in Ithaca, New York since 1991. This currency is used primarily among local businesses and is exchangeable for US dollars at a fixed rate of one hour per $10.
I specifically asked ChatGPT for an explanation of the recent growth in XAUT with these prompts without getting anything meaningful out of it:
- What caused XAUT to grow more than PAXG in just one year?
- Is XAUT available on more Blockchains compared to PAXG?
- What are the advantages of XAUT compared to PAXG? (most of the answers in this one were factual wrong!! )
Example of one of its wrong answers:Decentralized: XAUT is issued on the Ethereum blockchain, which means that it is decentralized and not controlled by a single entity. This can provide greater transparency and security compared to PAXG, which is issued by a centralized entity.
Read more: https://efipm.medium.com/3-changes-in-the-gold-backed-token-market-the-texas-wild-card-b044c85af40b
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