Tether Gold (XAUt) is a digital currency backed by gold. It is seen as a natural progression in the evolution of money, according to its official whitepaper. TG Commodities Limited, the company behind the largest stablecoin called Tether (USDT), introduced Tether Gold to provide users with a gold-backed digital currency.
Gold is often considered a valuable asset that retains its worth over time. Tether Gold offers some advantages compared to stablecoins backed by traditional currencies. It combines the scarcity and price stability of gold with the convenience of digital tokens for transactions. Tether Gold has limited supply, similar to gold, and provides stability in its value.
How does Tether Gold (XAUt) Work?
Each XAUt token represents one troy fine ounce of gold held in a vault in Switzerland. It can be divided into very small parts, up to six decimal places, allowing for precise fractional ownership.
Users who hold XAUt tokens can exchange them for physical gold, but they need to pay fees and meet certain requirements. The gold can be delivered to a location of their choice in Switzerland. Alternatively, users can ask Tether Gold to sell the gold on their behalf and receive the proceeds from the sale.
Each on-chain address that holds XAUt tokens will be associated with specific gold bars. Tether Gold provides a website where anyone can check which gold bar(s) are connected to each address holding XAUt tokens.
When XAUt tokens are transferred from one address to another, Tether Gold will rearrange the physical gold associated with each address to minimize the number of gold bars. This ensures that each XAUt token always represents ownership of a specific gold bar.
To buy or redeem XAUt tokens with Tether Gold, users need to go through an identity verification process and agree to specific terms. There are also minimum requirements for purchasing or redeeming XAUt tokens.
Potential Use Cases
Tether's fiat-pegged products, which are linked to traditional currencies, have been widely used for various purposes, especially in global transactions. While fiat money already allows for global transfers, the introduction of fiat-pegged stablecoins has attracted users who highly value speed and efficiency. However, physical gold, unlike fiat money, is not easily movable. This is where a gold-pegged stablecoin like XAUt brings new possibilities for economic activity, as the token represents a significant advancement in the usefulness of gold as a transactional asset.
a. Highly Mobile 'Safe-Haven' Asset
Physical gold has traditionally been seen as a safe-haven asset. However, due to its physical nature, it can be challenging and expensive to transact and store. By combining the economic characteristics of physical gold into a digital token, XAUt eliminates many of the difficulties and costs associated with holding the physical asset. While the actual gold remains in vaults, XAUt allows for the seamless global transfer of ownership and value associated with gold.
b. Liquid & Effective Portfolio Hedge
As a hedge against financial instability, many investors include gold in their portfolios. However, gaining exposure to physical gold has been historically expensive and burdensome, especially for non-institutional investors looking to acquire smaller quantities. Although there are lower-cost gold-related investment products available, they often lack the liquidity and effectiveness as a hedge that physical gold provides. By enabling smaller denominations at wholesale prices, XAUt aims to democratize access to physical gold as an asset class.
c. Sovereign-Neutral Monetary Unit
One of the broadest use cases for XAUt is as a sovereign-neutral monetary unit. By combining the monetary principles associated with gold and bitcoin, users can access an asset with the scarcity and price stability of gold. While bitcoin is often praised for its lack of political affiliation and resistance to censorship, physical gold has historically served as a sovereign-neutral monetary unit. Both bitcoin and physical gold operate independently of central authorities, but bitcoin's high price volatility hinders its use as a reliable monetary unit for trade. By incorporating the desirable qualities of both assets, XAUt could become the first widely-traded sovereign-neutral monetary unit with a high degree of price stability. By making gold-based contracting and global settlement accessible to everyone, XAUt tokens offer a new and practical monetary foundation for global trade. Although governments may no longer be tied to a 'gold standard,' XAUt empowers individuals to adopt one if they choose to do so.