2022 so far hasn’t proved to be a great year for the crypto sector. There are numerous causes of concern like the downfall of big names in the sector and their stablecoins signifying the high level of instability stablecoins might possess.
Crypto is considered to be a highly volatile market and the irregularities often persuade investors to look out for alternatives to get away with the increasing instabilities of the market and the increasing threat of stagflation i.e. slow economic growth.
A recent trend among investors shows increasing likeness towards one of the most stable investments gold. Gold has been a dominating resource in the economy since the prehistoric era. Currently, digital currencies backed by physical gold are seeing a rise in popularity among traders for their sense of stability and security.
With an intent to reduce the constant fluctuations in price, digital assets are linked to gold. The price of gold doesn’t go through massive fluctuations hence the gold-backed tokens remain more stable than other digital currencies in a certain timeframe. The backing ratio of gold is a variable depending upon the coin. The value of the currency in this case is also directly reliant on the price of gold at that particular time.
The transactions from these gold-backed assets can be done similarly as is done with other cryptocurrencies. The gold reserves handled by custodians like banks or third-party companies hold the physical gold which is backing that cryptocurrency.
With the increasing trend, many crypto projects are considering offering gold-backed digital assets while few have already started doing so but to offer gold-backed digital assets, companies must possess and maintain real gold in vaults. One of the most popular gold-backed stablecoins in the market is Tether Gold.
While gold-backed assets are becoming increasingly popular, the concept is still new to the industry and hence the sense of accountability, in this case, is threatened. Also, the idea of decentralization which is the core of crypto is nullified here as the asset becomes highly centralized with the actual investment gold being entrusted under the authority of the vaults. Also, gold-backed cryptocurrencies have issues with liquidity as the small investor base causes a lack of in-time trading not making the purchase and sale as desired.