This article is devoted to investing in gold and other tangible commodities such as lead using cryptocurrencies.
Introduction to stablecoins
In the beginning, I should explain to my readers the concept of “stablecoin.” We can define “stablecoin” as a cryptocurrency that should illustrate the value of something else. It can be a real currency, a commodity, or even a stock index. The first stablecoin was developed due to the volatility of the cryptocurrencies market. Let’s take such an example. You invest in Bitcoin, and the chart is soaring. You guess that this prosperity can end before long, so you want to escape your investment position. Unfortunately, when you cash your investment, you will have to pay the tax. You want to avoid it, and now You have to think of how to exit Bitcoin and at the same time avoid the tax. Such a situation was quite often in the past. Then some people figure out that they can take advantage of it by creating a cryptocurrency that denotes roughly one dollar. It was a breakthrough because until then, the hallmark of cryptocurrencies was their volatility. People didn’t have to wait long until new cryptocurrencies, which were supposed to reflect values of other national currencies, were created.
Reasons for buying gold on the blockchain
The main benefits of investing in gold using the blockchain are:
- A much easier way to come into possession of it.
- You can buy it and pay in cryptocurrencies.
- It can be cheaper. There are no fees for holding your position or costs of storing gold in some protocols.
- Gold, thanks to it, is PROGRAMMABLE.
In my opinion, the last point deserves most of our attention. Since gold can now be programmable, there is a chance that in the future, we will be able to use gold in the same way as we use money now. I mean by it that there will be the possibility of taking a loan in gold and getting interest from gold.
Current possibilities of buying “digital” gold
Nowadays, we have four options if we want to buy gold on the blockchain.
- Digix Gold Token
- PAX Gold
- Synth sXAU
- Tether Gold
I want to describe each of these possibilities shortly.
Digix Gold Token was the first stablecoin of gold. It is registered in Singapore, and also in this country, gold is stored. One token is equaled to 1 gram of gold. You can buy this token using a well-known decentralized stock exchange called Uniswap. Users have to pay 0.13% for each transaction with this token. There is also a fee regarding storing physical gold, which is 0.6% of the gold value. The biggest downside of using this protocol is its small capitalization.
On the other hand, we have PAX GOLD which value should be precisely equal to 1 oz of gold (31,1 g). This token doesn’t have any fee for holding it. There exists a commission for creating it from gold and for exchanging it for gold. It ranges from 0.125% to 1%. For each transaction with PAX GOLD, 0.02% is charged. The main benefit of this coin is safety because its issuer is a company under the regulations of the New York Department of Financial Service. For this reason, the company’s vault is checked each month. Anyone has access to the report from this control which is published on the project’s website.
Synth sXAU is the most interesting coin from these, which were listed. Why? Because its issue is entirely decentralized. There is no actual gold stored, which is supposed to maintain the token price in the correct range. Synth sXAU is created in a unique ecosystem managed by smartcontracts. If you are interested, you can find more information here.
The last option is Tether Gold. This coin is issued by the same company responsible for Tether USD, one of the most popular stablecoin in the world. There is no need to elaborate on it because it is pretty similar to investing in the first two. The difference is regarding charges. The only fee is imposed on creating a token and exchanging it in the reverse direction for gold. However, to do that, your minimal investment has to be equal to 75 000 USD. If your pocket is not so deep, you can buy this token on the market. There are charges neither for each transaction nor for holding your investment position. You can now guess which option among mentioned is the cheapest.
Summing up, the industry around crypto is still growing up. I strongly advocate for it, but I am not blind to prospective traps. We should remember that this market is unregulated, and due to this fact, there is a risk of fraud. In most cases, we cannot control the issuers of stablecoins and their vaults, so theoretically, we are not sure about its real value. For this reason, I favor decentralized projects such as sXAU because there is no need to trust anyone. Unfortunately, in such systems, especially when they are still young, there is a danger that some hackers will discover vulnerabilities in smartcontracts that are responsible for the whole ecosystem. Everyone who wants to use such novelties should be prudent and not invest in something that might seem obscure.