What are gold-backed stablecoins, and how do they work?

Gold-backed stablecoins are digital currencies pegged to physical gold reserves and designed to maintain a stable value. The concept of gold-backed digital currencies dates back to the early days of cryptocurrency, with developers aiming to create a reliable store of value.

Gold-backed stablecoins are a type of digital currency that are pegged to the price of gold. This means that each token can be exchanged for a fixed amount of gold, or vice versa. The goal of gold-backed stablecoins is to provide a stable and reliable store of value in the cryptocurrency market, which can be highly volatile.

Each gold-backed stablecoin is linked to a specific quantity of gold. For example, one token might be equal to 1 troy ounce of gold. A troy ounce is a unit of weight used especially for measuring precious metals such as gold, silver, and platinum; it is equal to 31.1034768 grams.

The gold reserves are typically held by a third party, such as a trust company or a bank, to ensure security and transparency. The issuing entity is responsible for maintaining an equivalent amount of physical gold for every token that is issued and circulating in the market.

The price of the token remains closely aligned with the market price of gold. When buyers purchase the tokens, they pay the spot price of gold at the time of the transaction. Similarly, if the stablecoin is liquidated, the tokenholders can redeem their tokens for the corresponding amount of gold. In practical terms, the gold is liquidated to enable electronic fiat transfers to the tokenholders.

Regulators classify gold-backed stablecoins as commodity-backed stablecoins or asset-referenced tokens (ARTs), depending on the jurisdiction.

Examples of gold-backed stablecoins include Tether Gold (XAUT), Paxos Gold (PAXG), and Alloy (aUSDT).

As of April 1, 2025, Tether Gold (XAUT) is being traded at $3,165. Its market capitalization is about $780.3 million, while the daily trading volume is $11.03 million.