The intersection of gold and blockchain has given rise to a plethora of tokenized gold projects over the past few years. According to data recorded on January 12, 2020, there are currently over 77 blockchain projects claiming to be backed by physical gold, while at least 30 previous attempts have already failed. Despite Bitcoin's narrative as 'digital gold,' these gold-backed tokens continue to attract developers and investors seeking stability rooted in a tangible asset.
Two New Entrants: DGLD and XAUT
In October 2019, CoinShares, Blockchain.com, and precious metal trader MKS launched DGLD, a digital gold token backed by physical gold and secured by the Bitcoin network. Each DGLD token represents 1/10th of a troy ounce of fine gold. The token can be traded on Blockchain.com's trading platform, The Pit, but is not available to residents of Canada or the United States. In January 2020, Tether introduced XAUT (Tether Gold), listed on Bitfinex. Each XAUT token represents one troy fine ounce of gold on a London Good Delivery gold bar, aiming to combine the benefits of physical and digital assets while avoiding high storage costs and limited accessibility associated with physical gold.
Market Reality: Thin Volume and Low Adoption
Despite the allure of gold-backed cryptocurrencies, most projects suffer from extremely low market capitalization and trading volume. For instance, Karatgold (KBC) boasts a market cap of around $65 million but sees only $200,000 in daily global trade volume. Digix Gold (DGX) has a market cap of approximately $6 million and daily volume of $193,000. Combined, these figures pale in comparison to Tether (USDT) with $602 million daily volume and Bitcoin with $529 million. Even gold-backed stablecoins like PAXG face similar liquidity challenges.
Centralization Concerns and Historical Lessons
The concept of gold-backed digital currency is not new. Early attempts like e-gold (founded in 1996) and Liberty Reserve failed due to centralized custody issues, lack of KYC/AML compliance, and regulatory pressure. Today's blockchain gold projects, while using distributed ledgers, still rely on centralized custodians (e.g., vaults storing physical gold). This raises questions about decentralization and trust. John Paul Koning, a known crypto commentator, asked on Twitter whether such projects are sustainable without custody fees. Brandon Arvanaghi, CSO of Layer1, responded that transaction fees are fickle, as off-chain trading on centralized exchanges can avoid them, and 'wrapper' contracts can create synthetic exposure.
Can Gold-Backed Crypto Overcome the Past?
Gold bug Peter Schiff has long argued that a gold-backed cryptocurrency would outperform Bitcoin because Bitcoin is 'backed by nothing.' However, the data shows that after decades of attempts, gold-backed tokens still struggle with adoption, liquidity, and regulatory clarity. The success of DGLD and XAUT may depend on their ability to address centralization, provide transparent audits, and offer competitive transaction models. Until then, the holy grail of a fully decentralized, trusted gold token remains elusive.