Can Gold Stablecoins Act As Hard Money?

As governments all over the world continue to engage in questionable monetary policy and currency debasement, the exploration of stablecoins as a form of hard money via precious metals may be the answer we’re looking for. Here’s why. 

Development behind stablecoins has increased its total market capitalization to approximately $79 billion. Tether, the current stablecoin leader, continues to outpace Bitcoin and other top currencies in daily transaction volume, displaying the sheer demand for stablecoins. The emerging asset category provides a much-needed hedge against the aggressive volatility experienced within cryptocurrency markets. Traders, enterprises, and governments are actively using stablecoins as payment methods while exploring other stablecoin solutions. 86% of central banks are now actively researching central bank digital currencies (CBDCs) and stablecoins targeting the massive consumer markets like esports are becoming more prevalent. 

Unlike other cryptocurrency counterparts, stablecoins’ on-chain assets are pegged to real world value to retain a stable value. However, as the underlying fiat currencies to which these assets are pegged are printed at higher and higher rates, the value of stablecoins may be brought into question. As stablecoins are primarily denominated in US dollars, the United States’ recent $1.9 trillion stimulus could worsen the inflated Federal Reserve balance sheet that saw 40% of US dollars circulated produced last year.

The US dollar has functioned as the world reserve currency for over 70 years, over 61% of foreign bank reserves and 40% of the world’s debt are in US dollars. In the wake of the coronavirus pandemic, more US dollars are circulating than ever before. Although the expansion of the Federal Reserve balance sheet is nothing new, overly aggressive money printing could begin to eat away at the dollar’s perceived value. In lockstep, China’s economy continues to inch closer to the top spot long held by the US, with some estimates projecting a flipping as early as 2028. Given that the US dollar has held its position as the world’s top reserve currency due to the strength of the US economy, this jeopardizes the dollar’s position. This could have further ramifications for stablecoins that are backed by US dollars. 

Possible alternatives to dollar-backed stablecoins may come in the form of crypto-collateralized and algorithmic stablecoins. However, these assets still utilize nascent, volatile assets to maintain the peg of the stablecoin, and a flash crash could spell disaster for holders. Considering this, a third option arises, one that returns to more traditional routes, precious metals, specifically gold. Gold-backed stablecoins are pegged to a certain amount of gold. Similar to dollar-backed stablecoins, gold could benefit from blockchain technology, while the underlying asset is held in reserve. This unlocks a slew of benefits that gold has not been previously afforded, notably transferability and divisibility. Additionally, gold-backed stablecoins provide a medium by which the 11 trillion dollar asset class could interact with the emerging world of decentralized finance.This unlocks numerous opportunities previously not possible with gold and provides an avenue for more traditional investors to begin exploring blockchain technology, utilizing an asset they have faith in.

Throughout our history, humans have regarded gold’s value, and even today, it is heralded as a safe-haven asset during trying economic times. Although Bitcoin has emerged as a form of digital gold, it is still in its early stages, and must compete with the millennia over which gold has entranced mankind. The tokenization of gold looks to introduce a massive asset class that holds recognizable value across a multitude of different markets to the token economy, and could be another tether that strengthens the link between traditional and neo-finance. As governments all over the world continue to engage in questionable monetary policy, a return to precious metals through stablecoins may be coming sooner than we think. 

Stably is currently working with an industry-leading precious metals dealer to tokenize a large physical repository of .9999 gold. These assets are held with regulated trust companies and national custodians who are subject to regular audits by both the government and independent firms. Through Stably Enterprise, Stably can aid businesses in bridging the gap between real world value and the digital world, allowing them to leverage the value held within precious metals and other analogue assets within dynamic, decentralized environments. In addition to granting the numerous benefits of blockchain technology to traditional assets such as gold, Stably Enterprise can create new or increase existing revenue streams, help businesses to reach new markets, and aid as businesses adapt to both current and future digital trends. 

If you would like to learn more about tokenization-as-a-service, please visit our website or check out our Enterprise Tokenization 101 deck.