Financial encyclopedia

At the moment of global economic turmoil, the demand for investors to seek hedging tools continues to grow. The stable currency supported by gold, which combines the value stability of gold with the high liquidity of blockchain technology, has quickly become the focus of the market. Can this emerging market really be as stable as gold, or are there hidden risks?

The stable coins supported by gold, such as Paxos Gold(PAXG) and Tether Gold(XAUT), are essentially digital tokens, and their value is linked to physical gold. This kind of stable currency claims that every token held by investors is equivalent to having the same amount of physical gold reserves. This is an ideal choice for investors who want to balance risk aversion and convenience. Especially under the pressure of high inflation and currency depreciation, the attraction of stable currency supported by gold is more obvious.

Common uses of stable currency:

Transaction and payment: Stable currency can be used for cryptocurrency transactions, providing more stable value than digital currency such as Bitcoin.

Hedging and asset storage: Because of its stability, stable currency is often used to hedge and avoid price fluctuations of other cryptocurrencies.

DeFi application: stable currency is widely used in decentralized finance, which can be used for lending, trading or as collateral.

The core attraction of gold stable currency lies in three points:

Hedge property: Gold has always been regarded as a "safe harbor" against market turmoil, and stabilizing the currency further reduces the obstacles to trading and storing gold.

High liquidity: Based on blockchain technology, investors can quickly exchange assets in the global market.

Innovative financial instruments: It provides a flexible choice for decentralized investment, especially in the application fields of cross-border payment and decentralized finance (DeFi).

A stable currency backed by gold is not without risk.

Are these tokens really supported by enough physical gold? Although some issuers provide third-party audit reports, the cornerstone of market trust is still weak.

The liquidity of stable coins backed by gold in the exchange is obviously lower than that of stable coins backed by legal tender (such as USDT), which may affect its investment attraction.

Although the price of gold is relatively stable, it will still fluctuate due to changes in economic data and monetary policy, which will indirectly affect the value of these stable coins.

For investors, stable currency backed by gold can be used as a part of asset portfolio to spread risks, but it should be avoided as the only hedging tool. Before allocating such assets, we should choose products that are supported by transparent resources and can circulate in major markets, which can effectively reduce potential risks. With the gradual maturity of the market, the investment opportunities brought by the combination of gold and digital currency in the future cannot be ignored.