Gold has been considered a safer trading vehicle for centuries, with many seeing the commodity as a reliable hedge against inflation today. However, despite its historical resilience, the commodity does present certain challenges.
First, it’s not as easy to buy and sell gold when compared to cryptocurrencies. Second, gold needs to be stored and secured physically, which can be inconvenient. Cryptocurrencies, meanwhile, are fungible and relatively easy to trade and store. Gold-backed tokens combine the strengths of both assets to offer a compelling option to crypto traders.
Curious to learn more? In this article, we’ll explore what gold-backed tokens are, how to trade them, and introduce the leading gold-backed tokens on the market in 2024.
What are gold-backed tokens, and how do they work?
Most of us are familiar with cryptocurrencies such as Bitcoin and Ethereum, and the advantages they bring. Bitcoin, for example, is considered a store of value and an alternative to fiat currencies. It also offers almost instant settlement, all powered by the blockchain. Bitcoin is also fungible, making it convenient for users to break the asset down into smaller values. This feature is fundamental to the asset’s use as a virtual currency, particularly as one Bitcoin today is worth tens of thousands of dollars.
Physical gold is very different. It’s hard to transport and divide, and both actions cost money. Securing gold is also more difficult compared to cryptocurrencies. However, the yellow metal does have one thing in its favor: trust. Bitcoin has been around for just over 15 years. Gold, on the other hand, has been around for centuries and is considered a valuable resource.
Gold-backed tokens are tokens that are tradable on the blockchain and backed by real gold. Think of them as gold-pegged tokens, similar to how USDT is pegged to the U.S. dollar. Each token has its own ratio. Some are pegged at a 1-to-1 ratio, where each token represents one gram of gold. Others follow the XAU ticker, which is the price of one ounce of gold in the U.S..
Irrespective of how gold-backed tokens are represented, they carry the advantages of blockchain technology. First, you can store them in a software wallet or a hardware wallet for both convenience and robust security. Like Bitcoin, you can also divide the tokens into smaller units, and send them anywhere across the world in a matter of minutes.
Now that we understand what gold-backed tokens are, let's look at the leading options on the market today.
Top gold-backed tokens in 2024
The market for gold-backed tokens is still emerging, with few well-established coins available. However, with the tokenization of real-world assets gaining strength in 2024, we may see more options emerging in the near future.
Below, we explore the two leading assets in the space today.
Tether Gold (XAUT)
Tether Gold (XAUT) is the most popular gold-backed token. XAUT was created by Tether, the company behind the largest stablecoin, USDT. XAUT is backed by physical gold reserves stored in a Swiss vault, and each token represents one ounce (31.1035 grams) of gold.
XAUT is available as an ERC-20 token on Ethereum and a TRC-20 token on Tron. The token can be divided up into units as small as 0.000001 XAUT. Users can also redeem their tokens for gold delivery in Switzerland, or have Tether sell the gold and take the settlement in cash. The minimum redemption size is 50 XAUT, which is about $100,000 at the time of writing.
XAUT offers convenient gold ownership, without any custody fees. It's also relatively inexpensive to transfer the token to others on the blockchain, as you’d pay only gas fees. However, issuance and redemption fees apply depending on the quantity and transaction type. Tether also provides frequent reports on its vaults and holdings for transparency.
Market cap: XAUT has a market cap of over $573 million and a daily trading volume of $2.2 million.
Tokenomics: Each token represents one ounce of gold, backed by physical gold bars.
PAX Gold (PAXG)
PAX Gold is issued by Paxos, the blockchain company behind other tokens such as the USDP stablecoin. PAXG is an ERC-20 token on the Ethereum blockchain. The PAXG token also represents one ounce of gold. It's backed by a 400-ounce London Good Delivery gold bar stored in secure vaults.
PAXG is regulated and approved by the New York State Department of Financial Services. A third-party auditing firm performs monthly checks to make sure the reserve matches the supply. Additionally, Paxos also performs regular smart contract audits to identify and address any vulnerabilities.
No storage or custody fees are charged for PAXG, and a small transaction fee of 0.02% applies for PAXG transactions.
Meanwhile, Paxos provides healthy transparency to the blockchain and simple redemption of tokens for physical gold. PAXG tokens have serial numbers that are matched to physical individual gold bars. Users can enter the serial number on a specialized platform to explore the characteristics of the gold bar.
On the topic of redemption, holders can redeem PAXG for fiat currency through a bank transfer or cryptocurrencies. Additionally, users can redeem allocated or unallocated gold bullion bars from gold retailers at market prices.
Market cap: PAXG has a market cap of $428 million, with a daily volume of $2.3 million.
Tokenomics: Every token is backed by actual gold and features a serial number users can search for to discover the gold bar’s properties.
Digix Gold Token (DGX)
Digix Gold Token (DGX) brings a unique approach to gold-pegged digital assets, providing a secure and transparent way to own gold. Each DGX token represents one gram of gold, stored in secure vaults located in Singapore and Canada. Digix uses blockchain technology to guarantee the traceability and auditability of the gold backing each token, offering a high level of transparency and trust.
Traceability is one of DGX's standout features. The platform issues gold certificates for each token, allowing investors to track the gold's provenance. This makes sure that each DGX token is fully backed by real gold, providing confidence and security for investors. Additionally, the gold is regularly audited and insured, further enhancing the trustworthiness of the token.
Market cap: Digix Gold Token has a total market cap of $1.1 million.
Tokenomics: Each DGX token represents one gram of gold, providing transparency and security through blockchain verification and regular audits of gold reserves.
Goldcoin (GLC)
Goldcoin (GLC) is a well-established asset having been launched in 2013. Every GLC token is equivalent to one gram of gold.
Goldcoin is also easy to use. You can buy, sell, and trade the token on several cryptocurrency exchanges. This makes them accessible to both experienced traders and beginners. Meanwhile, Goldcoin allows you to own small amounts of gold without paying a large upfront cost. It's a good option for those who want to start trading in gold but lack capital.
Another key feature of Goldcoin is its low transaction fees, making it a cost-effective way to get involved in gold. The gold backing each token is stored in secure vaults, ensuring its safety and reliability.
Market cap: Goldcoin has a total market cap of $10 million.
Tokenomics: Each GLC token is linked to one gram of gold, providing stability and value. Transaction fees are low, and fractional ownership makes gold accessible and affordable.
How to buy gold-backed tokens
OKX provides a secure, transparent, and intuitive platform for buying gold-backed crypto tokens. At the time of writing, XAUT is listed on our exchange, with deep liquidity available. You can access XAUT through our exchange on web or mobile.
Buying XAUT on the OKX web platform
Step 1: Create an account on OKX.
Step 2: Once you’ve successfully verified and logged into your account, you can buy XAUT. To do so, you’ll need to hold USDT in your account. You can either deposit USDT or follow our Express buy feature to purchase USDT using your preferred payment method.
Step 3: Head over to “Trade” at the main navigation bar and click “Spot.” Then, type “XAUT” into the search bar on the top left. Next, select the “XAUT/USDT” pair.
Step 4: Here, you can check the current buy-and-sell price of XAUT. Choose either a limit or market order based on your personal preferences. Then, the order will be executed, and the XAUT tokens will be deposited into your OKX account. By placing a market order, you can buy XAUT at its current market price immediately.
Buying XAUT on the OKX mobile app
The OKX mobile app offers a fast and simple method for purchasing XAUT on the go.
Step 1: Download the OKX mobile app for iOS or Android, depending on your device.
Step 2: Sign in to your OKX account. If you don't already have an account, select “Sign up” and follow the required steps.
Step 3: After completing your registration, you can now purchase XAUT. To make a purchase, you’ll need to hold USDT in your account. If you already have USDT, you can deposit it by going to the "Assets" section. If not, you can use the "Express buy" feature on the app to purchase USDT.
Step 4: Select “Trade” from the navigation bar at the bottom. Next, click on the trading pairs located in the upper left corner and enter "XAUT." Now, tap the "XAUT/USDT" trading pair.
Step 5: To place a limit order, simply insert the desired price and quantity. Once the conditions are met, the XAUT tokens will be deposited into your OKX Web3 Wallet. You can also place a market order on the mobile app if you want to execute the order immediately.
Advantages of gold-backed crypto tokens
Liquidity and accessibility: Gold-backed tokens are highly liquid, allowing you to buy and sell them instantly on exchanges — much faster than you could a physical gold bar.
Security: Physical gold requires expensive security and maintenance compared to gold-backed tokens, which can be stored in Web3 wallets.
Ease of transfer: Gold-backed tokens can be transferred across the world in a few minutes, which is impossible with physical gold.
Fungibility: Gold-backed tokens are extremely fungible. They can be broken down into small parts with minimal cost. However, it's expensive to transport or divide up physical gold.
Diversification and inflation hedge: Gold has been seen as a safe asset for centuries by many. Gold-backed tokens might therefore be an attractive option even for those not interested in buying conventional cryptocurrencies.
Secured on the blockchain: Gold-backed tokens benefit from the immutability and transparency brought by blockchain technology, which help make transactions more secure.
Risks and considerations
Third-party dependency: Traders depend on the stability and lawful action of the companies issuing the token, which could be considered a risk compared to holding your own gold.
Regulatory uncertainty: Although both XAUT and PAXG are legally issued, gold-backed tokens are a new asset class that has yet to be fully regulated.
Auditing: Comprehensive audits are required to make sure the gold reserves and their associated tokens match.
The final word
Gold-backed tokens are an interesting option for crypto traders amid a rising trend for tradable real-world assets (RWA). The asset merges blockchain technology with the appeal and relative price stability of gold, modernizing a commodity that’s been traded for centuries. Through tokenization, gold can find a wider audience among traders who prefer the decentralized nature of crypto and are attracted by gold’s “safe haven” status.
Although gold-backed tokens have been available for some years now, the asset type is relatively new when compared to today’s large-cap coins. As the crypto ecosystem matures, many expect RWAs to continue to grow in appeal, with gold-backed tokens among them.
FAQs
Gold-backed tokens allow traders to gain exposure to gold as a commodity but without many of the risks associated with physical gold. These risks include the costs and security hazards that come with owning and transporting gold bars.
Meanwhile, it can also be costly to segment physical gold, while gold-backed tokens can be divided up instantly. What’s more, traders can transfer their digital tokens anywhere across the world in a matter of minutes.
There are no certainties in trading. Gold is considered by some to be a good hedge against inflation, but historical performance is never a reliable indicator of future price action. That’s why it’s imperative to do your own research before committing funds to any trade.
Some of the key factors to consider when choosing a gold-backed token include the credibility of the issuer. Do they have a trustworthy track record? How transparent are they about the project and, crucially, their gold reserves? It’s also important to understand what security measures the project has in place to protect users, and how the project intends to maintain it’s peg to gold.
A good place to start when performing due diligence on a project is to read the white paper.
Yes. Gold-backed tokens represent ownership of gold, and they're backed by physical gold by the issuer. Most issuers also let their users redeem the gold-backed tokens for physical gold. This differs from cryptocurrencies such as Bitcoin which aren't backed by any physical asset. Instead, they’re backed by blockchain technology and their value comes from supply and demand in the market.
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