Stablecoins are typically designed to maintain a steady value, often pegged to fiat currencies such as the U.S. dollar, making them popular tools for facilitating digital transactions. However, the majority of stablecoins, including major players like Tether (USDT) and USD Coin (USDC), primarily serve as digital representations of currency rather than investment vehicles due to their $1 price peg. These two alone combine to dominate approximately $263 billion of the $317 billion stablecoin market, underscoring the prevalence of fiat-backed tokens.
Beyond dollars, there exists a subset of stablecoins backed by commodities, primarily gold. Two leading options in this category are PAX Gold (PAXG) and Tether Gold (XAUT), both backed directly by physical gold bullion. Each crypto token issued corresponds to ownership of one troy ounce of actual gold, differentiating them from traditional dollar stablecoins by their linkage to a tangible asset.
These gold-backed stablecoins have demonstrated resilience in value despite fluctuations in the broader cryptocurrency market. While the crypto industry has faced considerable volatility, PAX Gold and Tether Gold maintain price movements closely aligned with those of physical gold, offering investors a digital route to gain exposure to the precious metal.
Operational Insights into PAX Gold and Tether Gold
Both stablecoins operate via private entities responsible for minting the crypto tokens and managing the underlying gold reserves. Paxos Trust Company issues PAX Gold, whereas Tether Gold is produced by TG Commodities Limited, a subsidiary of Tether Limited. Each token represents ownership of a specific, identifiable gold bar, complete with unique serial numbers to link the token holder to the physical asset.
Ownership rights granted to token holders include the ability to redeem tokens for physical gold, providing flexibility beyond mere digital trading. While this choice may detract from the convenience generally associated with stablecoins, it reinforces the tangible backing these tokens possess compared to fiat-based stablecoins.
The stablecoins strive to track the spot price of gold, typically minus certain fees. Notably, neither Paxos nor Tether charges ongoing storage fees for the gold reserves. However, transaction fees are applicable: Paxos imposes purchase and sale fees that vary based on the volume transacted, while Tether levies a one-time 0.25% fee for both acquisition and redemption of tokens. Additional fees may apply during redemption with Tether Gold.
Comparing Market Prices and Accessibility
As of December 27, the spot price of gold stood at approximately $4,534 per ounce. At this point, PAX Gold traded near $4,560, slightly above the spot price, while Tether Gold was positioned around $4,543. Although close in value, the choice between these two requires evaluating other operational factors.
In terms of market availability, PAX Gold enjoys broader accessibility, listed across multiple U.S.-based cryptocurrency exchanges such as Coinbase, Gemini, and Kraken. Conversely, Tether Gold's trading options within the U.S. are more limited, with Kraken being the sole major exchange offering it presently.
Assessing Security and Regulatory Standing
Security and issuer credibility are paramount considerations, particularly for stablecoins tied to physical assets. Both Paxos and Tether Limited support their respective tokens with gold reserves, providing independent accounting attestations to verify these holdings. Paxos issues monthly reports confirming reserves, whereas Tether Limited provides quarterly attestations.
However, Paxos may be perceived as more reliable due to its regulatory environment. As a financial institution licensed by the New York State Department of Financial Services (NYDFS), Paxos operates under stringent regulatory oversight. By contrast, Tether Limited is not licensed within the United States and has faced regulatory scrutiny, including a $41 million fine imposed by the Commodity Futures Trading Commission in 2021 for misrepresentations regarding its reserves for the Tether stablecoin.
While both companies disclose their reserves with independent verification, Paxos's regulatory compliance and absence of comparable controversies contribute to a stronger trust profile among investors.
Final Considerations for Investors
Choosing between PAX Gold and Tether Gold largely depends on security preferences, fee sensitivity, and market access. PAX Gold may present a slightly safer investment due to its regulatory standing and broader exchange availability, which can facilitate easier purchase and liquidity. Tether Gold, meanwhile, sometimes offers marginally lower initial acquisition costs but comes with considerations regarding issuer history and more limited trading venues in the U.S.
Ultimately, both tokens provide a unique proposition for investors seeking digital gold exposure through commodity-backed stablecoins, melding the characteristics of cryptocurrency convenience with tangible asset security. Users must weigh the trade-offs in fees, transparency, and accessibility to determine the best fit within their investment strategy.