![]() ![]() In a similar fashion to XAUT, each PAXG is an ERC-20 token representing a fine troy ounce of gold and is backed by LBMA gold bars, but there are a few differences. PAXGĪnother major stablecoin issuer is Paxos which in addition to issuing Pax Dollar (USDP) and Binance USD (BUSD) also created a gold-backed stablecoin called Pax Gold (PAXG). So, despite XAUT offering the permissionless transfer of gold-backed tokens on the blockchain, there are hurdles to cross for anyone looking to cash in the tokens in exchange for actual gold. While the price of XAUT doesn't include a custody fee like most gold ETFs, there is a KYC process for anyone purchasing the tokens directly or redeeming them for gold. XAUT is issued exclusively on the Ethereum blockchain. Each XAUT token represents a fine troy ounce of gold and is backed by physical gold bars that meet the specifications of the London Bullion Market Association (LBMA). In addition to issuing fiat-backed stablecoins like USDT and EURT, Tether also issues a digital token backed by real gold called XAUT. Buying gold-backed cryptocurrencies is one of the best ways to invest in gold since blockchain allows you to transfer assets instantly and with zero paperwork or jurisdictional limitations. Historically, gold is a good investment both as a store of value and a hedge against other investments. Nevertheless, Circle-which is partnered with Coinbase as part of the Centre Consortium-is gearing up to go public through a special purpose acquisition, which is a good sign for USDC as long as it gets a kosher stamp from financial regulators.Īnother common type of stablecoin is tokens backed by physical gold. ![]() Treasury bonds are very safe investments in terms of value, they don't provide the ideal liquidity for a stablecoin. Treasuries, which are interest-bearing government securities. While USDC is arguably the most secure centralized stablecoin, it isn't fully backed by cash. This illustrates very high confidence in the USDC stablecoin, to say the least. Circle has gained hundreds of millions of dollars in institutional support from firms like BlackRock, Fidelity, and Bank of New York Mellon and has even partnered with international P2P payment company MoneyGram. TetherUSD and USDC are respectively the third and fourth largest cryptocurrencies, but USDC issuer Circle has done a much better job at assuring regulators and investors of its adequate reserves and liquidity via monthly reports. This shows that USDT could succumb to a potential bank run if the crypto market was to experience a serious crash. Secondly, Tether's market capitalization recently dipped by over $10 billion in May 2022 after the stablecoin traded for as low as 95 cents. Firstly, Tether has very little actual cash backing USDT since most of the assets backing the stablecoin are various forms of debt and other digital assets. While Tether does report its holdings to comply with transparency standards, there are some red flags when looking at Tether's fundamentals. The company-which also issues a Euro-based stablecoin called EURT-claims that the assets backing USDT include different forms of debt like commercial paper, U.S. Tether has admitted that their USDT stablecoin pegged to the US dollar is not fully backed by US dollars. USDTĭespite being the biggest stablecoin by market capitalization, USDT has been criticized for being insufficiently backed. The key to finding the best fiat-backed stablecoin is transparency, so the company issuing it must be accountable and frequently prove that they have enough money to back every stablecoin they issued. These stablecoins are centralized, meaning one entity is in charge of securing funds, minting tokens, and issuing them as stablecoins. ![]() Your goals as an investor and your risk tolerance are the biggest factors to consider when choosing a stablecoin to hold.įiat-backed stablecoins are tokens backed by fiat currency held in a bank. ![]() Confidence in any stablecoin comes down to the soundness of its underlying value mechanism, which is why frequent scrutiny is faced by companies like Tether, the world's biggest stablecoin issuer. While USDC and USDT and most other popular stablecoins are issued by a central company or organization, decentralized stablecoins like DAI have also been able to successfully maintain their peg to the dollar. Other stablecoins can be backed by collateral composed of other cryptocurrencies or can be backed by nothing at all and derive their value from an algorithmic minting mechanism -or are a hybrid of the two. The safest stablecoins are secured by U.S dollars, but some of the best stablecoins are backed by the value of gold. Stablecoins are cryptocurrency tokens pegged to an external value such as a fiat currency or commodity. ![]()
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