When the concept of cryptos was created more than a decade ago, the idea was to use them as a means of payment without the mediation of financial institutions. But, as more and more new tokens arrived on the market, they have got a completely different use in practice. Many investors have recognized cryptos as an ideal opportunity to make money.
That turmoil still reigns today. But, this excessive demand was the cause of the volatility of digital currencies. For example, the price of Bitcoin in one day could vary from 10 to 30 percent. That had a significant impact on the value of invested funds. Many got rich or failed financially in just a couple of hours.
In order to reduce the crypto market instability as much as possible, stablecoins, i.e., stable cryptocurrencies, came into play. Inflation, geopolitical tensions, and drops in the value of some fiat currencies have led to the increasing popularity of commodity-based stablecoins. The current global situation and the prevailing inflationary headwinds have pushed gold token crypto to outperform their fiat counterparts.
What Are Gold Backed Cryptos?
Stablecoins are made to maintain a stable market value. They are backed by real-world assets, such as commodities, gold, and fiat currency. The rise of gold-backed cryptocurrencies may be due to their high value in the real world. The underlying commodity is not related to any fiat currency, so it’s safer and more stable.
The first stablecoin backed with yellow metal is Tether, listed as USDT at the exchange market. Its stated purpose is to combine the true nature of cryptos – trading and sending between users without a third-party intermediary – with the stable value of commodities.
Tether is named USDT because it ‘binds’ to the value of USD in the ratio 1:1. But it also has its cover in gold, whose value usually moves opposite to the dollar. This token has achieved parity with gold during the Bitcoin price rally in 2017, sparking a huge interest in the idea of more stablecoins backed by this precious metal.
So it’s a derivative token known as XAUT (Tether Gold), where one coin is equal to one gram of this precious metal. It’s known for its security and smooth integration from crypto to fiat platforms.
Benefits of Stablecoins
Stablecoins enjoy the benefits of their crypto side but with fewer risks involved. These assets can become a viable means of payment in the long run. In simple words, you could actually buy something with them. Most businesses would accept cryptos as a form of payment if that could happen. But, so far, they are hesitant as they think these assets can vanish overnight.
These coins have the advantage of being backed by gold, which is a safe and secure asset. Also, there are a few more advantages over their fiat counterparts and ‘regular’ cryptos. For one, gold-backed stablecoins don’t need a centralized entity to maintain the asset reserves.
Second, they can withstand extreme market swings. Precious metals that back up these coins haven’t seen a drastic drop in prices for several decades. In fact, their value is constantly growing. Check this website to learn which factors affect the price of this precious metal.
Finally, gold-backed cryptos are liquid. Investors can purchase them on reputed exchange platforms and redeem them for physical gold if they wish. In addition to being secure, these cryptocurrencies are also easy to hold, just like their unbacked counterparts. Moreover, they have a low storage cost, as you keep them in hot or cold wallets, just like any other crypto.
Are There Any Drawbacks of Stablecoins?
The benefits of a gold-based stablecoin are many. They are safer than other cryptocurrencies and can help to hedge against volatility. Yet, they have some drawbacks you should be aware of. Cryptos based on yellow metal are a reliable option for storing and exchanging digital assets, but they come with certain risks.
Probably the primary issue is volatility. Although it’s minor compared to regular cryptos, stablecoins have a risk of volatility. That’s because many things trigger gold value, like supply and demand ratio, inflation, the geopolitical situation, etc.
There’s also a risk of hacking and stealing these digital assets. To avoid inconveniences, investors should check the details of the gold supply in the crypto exchange. If it’s large enough, it will protect the value of the digital tokens. Also, do your best to protect your digital wallets and trade these tokens only through reputable and trustworthy platforms.
Investing in Stablecoins
Gold-backed digital assets are relatively safe and secure to invest in, despite certain risks. They also have excellent transparency. The availability of current information is essential for building investor trust and increasing the value of these digital tokens.
The price of these tokens is tied to the gold spot rate, making them a good choice for those looking for a stable investment. These coins also come with low or no fees, as most trading platforms don’t charge fees on exchanging fiat currencies for stablecoins. And with their anti-inflationary properties, these assets are the perfect choice for those who wish to diversify their portfolios.
Below, get more info on investing in these tokens:
Having gold-based stablecoins in your portfolio is an excellent way to minimize the impact of market volatility on your savings. They will also hedge your money against the risks associated with speculative investments. So if you look for a stable investment, these coins are what you look for.