In recent years, over 77 blockchain projects have claimed that their tokens are backed by physical gold, yet at least 30 such projects have already failed. From early attempts like e-gold to modern offerings such as Tether Gold (XAUT) and Coinshares DGLD, gold-backed cryptocurrencies continue to seek a digital representation of the precious metal, but they face persistent challenges including centralization, low liquidity, and regulatory hurdles.
Current Landscape: Many Projects, Few Successes
As of January 2020, approximately 77 active gold-backed crypto projects exist, spanning tokens, ICOs, and blockchain networks. Notable examples include Digixglobal's DGX (representing 1 gram of 99% LBMA standard gold), AurusGold (AWG), Pax Gold (PAXG), and Karatgold Coin (KBC). However, market valuations remain modest: KBC has a market cap of around $65 million but sees only $200,000 in daily trading volume, while DGX has a $6 million market cap and $193,000 in daily volume. In comparison, Tether (USDT) sees $602 million in daily volume, Bitcoin (BTC) $529 million, and Bitcoin Cash (BCH) $30 million. Gold-backed tokens lag far behind in trading activity and network adoption.
New Entrants: DGLD and XAUT
In October 2020, Coinshares, Blockchain.com, and precious metals trader MKS launched DGLD, a digital gold token backed by $20 million worth of physical gold. Each DGLD represents 1/10th of a fine troy ounce and runs on Bitcoin's blockchain via Commerceblock's sidechain, tradable on Blockchain.com's Pit platform—but not available to U.S. or Canadian residents. In January 2020, Tether introduced XAUT (Tether Gold), with each token representing one fine troy ounce of London Good Delivery gold, listed on Bitfinex. Tether claims XAUT offers the combined benefits of physical and digital assets, avoiding the high storage costs and limited accessibility of physical gold.
Sustainability Concerns: Centralization and Fee Models
Noted crypto commentator John Paul Koning questioned whether gold-backed tokens like XAUT, PAXG, and DGX can sustain their zero-custody-fee model, relying solely on redemption and transaction fees. Brandon Arvanaghi, Chief Security Officer of Layer1, replied 'No, because transaction fees are fickle. Off-chain trading on centralized exchanges bypasses them, and on-chain wrappers can create synthetic trading.' Furthermore, despite using distributed ledgers, most gold-backed projects remain highly centralized in governance and gold custody—resembling the failed e-gold system of 1996, which collapsed due to non-compliance with KYC/AML regulations and the Patriot Act.
Can Gold-Backed Crypto Challenge Bitcoin's 'Digital Gold' Status?
Gold bug Peter Schiff argues that a precious-metal-backed cryptocurrency would be superior to Bitcoin, which he claims is backed by 'nothing.' However, market data shows gold-backed tokens have a long way to go to match Bitcoin's trading volume, user base, and network activity. More importantly, these projects must address centralization, regulatory compliance, and sustainable business models. Even with new players like DGLD and XAUT, the viability of gold-backed cryptocurrencies as a mainstream alternative remains uncertain.