Gold has always been considered a reserve asset, especially during unstable economic times. There have been many changes made within the digital currency ecosystem, whereby efforts have been made to bring traditional assets under blockchain technology. One such example would be the creation of Tether Gold (XAUT) that offers gold-backed cryptocurrencies.
With Tether Gold, one can trade and invest in gold without any difficulties with physical storage and transportation.
Tether Gold (XAUT) Defined
Tether Gold (XAUT) is a type of cryptocurrency that was developed by the Tether company. The gold backing this crypto comes from assets stored in secure vaults. Therefore, every token represents one troy ounce of pure gold.
While in the case of some conventional methods of investment in gold, there is only a limited form of interaction with the actual metal, this type is based on ownership of physical gold deposits. This cryptocurrency debuted in January 2020.
| Characteristics | Description |
| Asset | Gold |
| Date of Release | January 2020 |
| Backing | 1 troy ounce of gold for each token |
| Vaulting Structure | Allocated gold kept in vaults |
| Blockchains | Ethereum, Tron, and BNB Chain |
| Redemption | Physical gold available subject to certain conditions |
How Does Tether Gold Work
Tether Gold operates under a simple operational model. Bullion gold is purchased and stored in safety vaults; then tokens representing its value are issued.
Source: Kucoin
The acquisition of XAUT allows one to engage in gold trading without any need to handle the metal itself physically. The information about ownership of the coins can be provided through blockchain with digital wallets, as is done with most cryptocurrencies.
XAUT is available as an ERC-20 token on Ethereum and in other forms on Tron and BNB Chains. Blockchain allows for the following:
- Ownership transparency
- Transferring the coins across supported blockchain networks
- Interaction with smart contracts
- Use in decentralized finance apps
Independent verifications confirm that the tokens in circulation are backed by gold holdings.
Applications and Investment Functions of Tether Gold Tokens
Unlike fiat-backed tokens that aim at pegging themselves to particular currencies, Tether Gold gains its value through gold holdings. Therefore, there is a direct correlation between the value of the coin and the price of gold.
Cryptocurrency Functions:
Store of Value
The XAUT token gives people access to this asset through the use of blockchain technology.
Portfolio Diversification
Tether Gold can be used for diversifying an individual’s portfolio along with cryptocurrencies and other investments.
DeFi Applications
Tether Gold tokens can be utilized in decentralized finance environments for different purposes such as securing loans, lending, and liquidity.
Digital Transfers
The blockchain-based system means that customers can trade their rights to gold without shipping any gold between two places.
Tether Gold & Paxos Gold
Tether Gold is one product in a steadily rising market of gold tokens. Its biggest competitor is Paxos Gold (PAXG).
| Category | Tether Gold (XAUT) | Paxos Gold (PAXG) |
| Issuer | TG Commodities Limited | Paxos Trust Company |
| Gold Support | 1:1 Physical Gold | 1:1 Physical Gold |
| Ethereum Support | Yes | Yes |
| Tron Support | Yes | No |
| BNB Chain Support | Yes | No |
| Regulation | Tether Subsidiary | U.S. Regulated Trust Company |
Both types of gold have identical gold backing but differ in some other aspects. Verification of Reserves and Transparency Verification of reserves remains a significant factor for tokenized commodities.
As per Tether’s claims, each XAUT token is associated with a particular quantity of allocated gold bars based on its serial number, weight, and purity. Information about the reserves backing these tokens can be obtained via the issuer’s verification system.
Moreover, attestation is performed periodically to ensure that the amount of gold available is consistent with the number of tokens circulating. Attestation ensures verification of the reserve balance at a specific point in time rather than through financial auditing.
Potential Risks of Tether Gold
Although Tether Gold allows individuals to purchase gold through the use of blockchain technology, some potential risks exist in using such services.
Primary Risks
- Fluctuations in the price of gold and consequently of the token
- Counterparty risk associated with the custodian system
- Smart contract risk linked to the blockchain technology used
- Token regulations uncertainty
- Liquidity risk associated with trading volumes on the exchange
XAUT is not a stablecoin. It does not have a fixed price. Rather, its value fluctuates with the international gold market.
Conclusion
XAUT is one of the tokens that can be used to get exposure to a real-world asset such as gold. Every XAUT represents one troy ounce of physically allocated gold kept in professionally secured vaults.
Frequently Asked Questions (FAQs)
What is Tether Gold (XAUT)?
Tether Gold is a digital currency based on blockchain technology, which is supported by real gold, with one XAUT representing one ounce of gold.
Can I exchange my XAUT for gold?
Yes, one can convert XAUT into physical gold as long as he/she satisfies certain requirements.
Is Tether Gold considered a stablecoin?
No, because it is not a stablecoin due to fluctuations in gold values.
