Gold Prices: 3 Cryptocurrency Companies Offer $4.6 Billion Return on “Tokenized Gold” Market
The price of gold has risen 85.56% over the past 12 months, and is currently priced at over $5,100 according to the ongoing COMEX contract, so if you bought some gold a year ago, you would probably be very happy.
But if you’re a jewelry maker or retailer who needs to purchase gold frequently as part of your manufacturing operations, you have a logistical headache. You can wait until all of your current inventory is sold and then use that cash to buy more gold for new products. But that takes time, and while you wait, the price of gold may move against you.
Or you can do what jewelry companies actually do, which is continually borrow a stockpile of physical gold on the promise that what it’s worth is the same amount of gold, not its dollar value. The cost of carrying this borrowed gold is the interest payments on the loan. But because the debt is physical gold, not its ever-changing dollar value, the jeweler can reduce his exposure to negative price changes in favor of exposure only to interest payments.
This, of course, presents its own logistical headache. But some cryptocurrency companies – Theo, Libera, and Falcon Finance, in particular – believe they have created a solution that will make investing in gold more attractive.
Of course, “tokenized gold” has been around for a while. The concept is simple: you buy a crypto token that represents an amount of gold; The platform you purchase from promises to back that token with gold assets on an individual basis; Now you own the encrypted version of gold. (It is similar to the way a gold ETF holds gold but offers investors shares in the fund on the basis that each share is worth a certain amount of underlying gold.)
Currently, the two largest gold cryptocurrencies are Tether’s XAUT ($2.6 billion market cap today) and Paxos’ PAXG ($2 billion). Combined they have a market capitalization of $4.6 billion.
But there is an obvious downside to owning tokenized gold: if the price of gold falls, the value of your token will fall by exactly the same amount. Gold is technically a “passive” risky investment because it pays no interest (unlike bonds) and pays no dividends (unlike stocks). This is one of the reasons, historically, Gold has been a surprisingly poor hedge against inflation. Tokenized gold is basically just gold in crypto format.
Theo, Libera, and Falcon Finance think they have a solution for that: tokenized gold that pays a return to investors just for holding it. Even if the price of gold falls, holders of their coins will receive an interest-like percentage along the way, as these companies promise.
In Theo’s case, the company offered a token called “thGOLD.” Each token represents a tranche of the MG999 On-Chain Gold Fund, a secured private credit fund managed by FundBridge Capital and tokenized by Libeara, a startup backed by Standard Chartered’s venture capital fund.
The underlying fund lends gold to jewelers, who pay interest in return. After fees, thGOLD holders can expect to receive an annual return of 2.3%, said Ari Pingel, co-founder of Theo. luck.
ThGOLD can be traded on DeFi platforms such as Hyperliquid, Uniswap, Morpho, and Pendle.
Libeara’s first borrower is Mustafa Gold, a Singapore-based retailer with revenues of about $550 million that deals with about two tons of gold annually, said Arun Goak, CEO of Libeara. luck.
Courtesy of Libera
The advantage for Mustafa is that obtaining gold financing from cryptocurrency markets is easier than dealing with banks, which often make claims on company assets such as real estate to secure gold loans.
Interest rates are cheaper for gold borrowers as well.
“In Korea, I was talking to some gold dealers there who were borrowing gold, and (I said) we’re borrowing gold at 2.5% (annually), and they were like, ‘Oh, we’re borrowing gold at 1%.’ I was like, ‘Wow! This is great!’ But (they were paying) 1% per monthGuac said.
Falcon Finance has a more complex, cryptocurrency-based solution to the “passive” gold problem. It provides a “vault” in which customers can place their gold XAUT token as collateral. Falcon then uses this collateral to buy a hedging position on a decentralized financial exchange, for example, by being long and short of Bitcoin at the same time, so that no matter what happens to the price of Bitcoin, the value of the position remains the same. This position can be offered as loan liquidity on the platform to borrowers willing to pay a return on interest.
Falcon CEO Andrei Grachev said luck Traders can expect a 4% return after various fees. Falcon currently only has a few dozen clients testing the product, but Grachev hopes it will grow to $500 billion in assets under management “within a few months.”
Share this content:
Post Comment