The narrative that Bitcoin is “digital gold” hasn't stopped entrepreneurs from creating actual gold-backed tokens. According to data collated in early 2020, more than 77 cryptocurrency projects currently claim to be backed by physical gold, while at least 30 similar attempts have failed over the years. This phenomenon highlights both the enduring appeal of gold as a store of value and the challenges of merging it with blockchain technology.
Lessons from the Past: 30 Failed Gold-Backed Projects
The concept of digital gold isn’t new. In 1996, E-Gold launched as a centralized system allowing users to transfer gold ownership digitally. It quickly attracted millions of users but ultimately collapsed due to money laundering concerns and failure to comply with U.S. regulations. Similarly, Liberty Reserve met a similar fate. Despite the advent of decentralized ledgers, many modern gold-backed tokens—such as Digix Global’s DGX, Pax Gold (PAXG), and Tether Gold (XAUT)—remain heavily reliant on centralized custodians to store and audit the physical gold. This centralization could become a vulnerability, as the failure of E-Gold demonstrated.
Among the surviving projects, the list includes Darico (DEC), AurusGold (AWG), Cash Telex (CTLX), BlockStock (BSO), G-Coin (XGC), Goldnugget (GNTO), Goldmint (MNTP), Goldfund (GFUN), GramGold Coin (GGC), Karatgold Coin (KBC), and HelloGold (HGT). Yet many of these have minuscule market capitalizations and trading volumes, often not even listed on major crypto tracking sites.
New Contenders: DGLD and XAUT
Two notable launches occurred in late 2019 and early 2020. Coinshares, Blockchain.com, and precious metals trader MKS introduced DGLD, a token backed by physical gold and secured by the Bitcoin network via Commerce Block’s sidechain. Each DGLD token represents 1/10th of a troy ounce of fine gold. The project initially minted $20 million worth of gold. However, DGLD is not available to U.S. or Canadian residents.
Then, in January 2020, Tether announced Tether Gold (XAUT), with each token representing one troy fine ounce of gold from a London Good Delivery bar. Bitfinex listed XAUT on January 24, emphasizing that holders avoid storage costs and enjoy easy transferability. The press release stated that XAUT offers “the combined benefits of both physical and digital assets.”
Sustainability Questioned by Industry Experts
Not everyone is convinced. John Paul Koning, a well-known crypto commentator, questioned whether gold-backed tokens can thrive without charging custody fees. “Interesting — Unlike traditional gold storage options, blockchain gold products like XAUT, Pax Gold, and DGX don’t charge custody fees, just redemption/transaction fees. Is that sustainable?” he tweeted. Brandon Arvanaghi, CSO of Bitcoin mining firm Layer1, replied: “No, in part because the transaction fees are fickle. Offchain: any trading on a centralized exchange avoids them. Onchain: create a ‘wrapper' contract that owns several of the underlying tokens.” This suggests that revenue models based solely on transaction fees may be insufficient to cover the costs of gold storage and auditing.
Market Reality: Tiny Volumes Compared to Fiat-Backed Stablecoins
Despite the hype, the trading volume of gold-backed tokens remains negligible. For example, Karatgold (KBC) has a market cap of about $65 million but sees only $200,000 in daily trading volume. Digix Gold (DGX) has a $6 million market cap and $193,000 in volume. Combined, these two tokens see less volume than Tether (USDT) does daily ($602 million), and far less than Bitcoin Cash (BCH) at $30 million. This indicates that gold-backed tokens have a long way to go before they can compete with fiat-backed stablecoins in terms of liquidity and network adoption.
Gold bug Peter Schiff has argued that a gold-backed cryptocurrency could eventually surpass Bitcoin because Bitcoin is “backed by nothing.” However, the history of E-Gold and current regulatory uncertainties suggest that the road ahead is fraught with challenges. The question remains: will these 77+ gold-backed projects thrive, or will they follow the 30 that have already failed? Only time will tell.