Digital Gold XAUt: A Strong Competitor to USDt?

In the latest monthly analysis report on the cryptocurrency market, Bloomberg commented: "Due to the widespread use cases of bridging the USD, the growth of USDt seems unstoppable, and it is only a matter of time before it surpasses Ethereum."

Indeed, the expansion trend of USDt is very obvious. After March 12, the demand for margin trading from cryptocurrency traders, various gray industries, and the dollar demand from countries under sanctions or with excessive volatility in their local currencies have jointly driven the continuous increase in USDt's market value. However, while USDt is in the spotlight, other assets issued by Tether that anchor stablecoins have received relatively little attention.

According to Tether's official transparency page, in addition to USDt, Tether also issues stablecoins pegged to the euro, Chinese yuan, and gold: EURt, CNHt, and XAUt.

Among them, EURt was issued as early as 2014, but its current market value is less than 45 million euros. CNHt was launched in September 2019, with a current market value of about 23 million RMB. The market value, trading volume, and number of exchanges listed for these two stablecoins are quite limited.

The stablecoin XAUt, which was launched only in late January this year, has performed exceptionally well: According to Coingecko data, its market capitalization has risen to approximately $8.6 million in just over 4 months since its launch, with a 24-hour trading volume exceeding $110,000, and it is currently listed on 5 exchanges.

Why has XAUt been able to achieve rapid growth in a short period of time? What is its user base like, and what is the current trading situation? In the context where USDt seems to have firmly established itself as the king of stablecoins, will XAUt pose a new threat to it? PANews interviewed the representatives of Tether, the issuer of XAUt, and relevant trading platforms to answer these questions.

XAUt Rapid Expansion: Born in January, Grown During Economic Crisis

Tether may not have anticipated that shortly after issuing the gold stablecoin at the end of January, the COVID-19 virus would begin to spread globally, and the economic crisis it triggered provided excellent soil for the rapid growth of XAUt's market value.

Tether's Chief Technology Officer Paolo stated that each XAUt is backed by one ounce of physical gold. This means that the growth in XAUt's market value is driven by investor demand for physical gold.

The CEO of a trading platform believes that users interested in XAUt are those traders who wish to conveniently gain exposure to gold and have investment interests in both cryptocurrencies and gold.

Other executives from trading platforms share similar views, believing that XAUt provides a convenient way for retail and professional investors to invest in gold. The growth of XAUt is related to the aggressive monetary easing policies of global central banks represented by the Federal Reserve and the economic recession triggered by the COVID-19 pandemic, prompting investors to seek to hedge risks through XAUt.

These views align with changes in the macro environment. Since March, the Federal Reserve has announced a series of aggressive policies, such as launching a stimulus plan worth hundreds of billions of dollars, significantly lowering interest rates, and unlimited purchases of corporate bonds, treasury bonds, and mortgage-backed securities. Economic instability has driven up gold prices, and data shows a significant increase in demand for gold trading products.

As a gold-backed asset, XAUt seems to have become the true "digital gold". Paolo stated that investors do not need to pay custody fees for XAUt, and can redeem physical gold with XAUt. In addition, the minimum trading unit of XAUt can be split to six decimal places, and it can be traded around the clock. These factors are undoubtedly a strong driving force behind the surge in XAUt's market value in recent months.

The good development trend of XAUt has not only attracted various users such as retail investors, professional traders, and institutional investors, but also prompted trading platforms to build a richer variety of trading products around it.

Launch of XAUt's multiple futures contracts

According to the cryptocurrency data platform Nomics, three major exchanges account for approximately 85% of XAUt trading volume, with one exchange having nearly half of the volume, holding an absolute dominant position.

From the perspective of product form, several trading platforms mainly focus on derivatives of XAUt as the primary trading object.

The CEO of a trading platform stated that the platform currently offers perpetual contracts for XAUt and may launch quarterly futures for XAUt in the future, considering customer demand.

Another trading platform CEO revealed that they currently offer 3x leverage for long/short trading of XAUt and plan to launch spot margin trading for XAUt.

In addition to the diversification of trading product forms, various platforms have also planned the trading infrastructure for XAUt. Several exchanges plan to introduce XAUt to the Lightning Network to enhance trading efficiency.

Can XAUt become the next USDt?

In fact, the stablecoin sector pegged to gold has become quite crowded. Reports indicate that over 30 projects pegged to gold have failed in the past few years, and currently, there are over 75 similar projects. Besides Tether, several well-known institutions are also involved in this field.

The data of PAX Gold, a gold-backed coin issued by a licensed digital asset service provider, is also impressive compared to XAUt. As of the time of writing, PAXG's 24-hour trading volume is close to $480,000, far exceeding XAUt's over $110,000.

In addition, as a compliant licensed institution, the credibility of the gold reserves audit of PAX Gold is clearly higher than that of XAUt. Whether the situation of USDt being non-fully backed but thriving in the market can be replicated with XAUt still requires time to verify.

So, will XAUt become the next USDt in the future?

In this regard, Tether's Chief Technology Officer holds a negative attitude. He believes that although the gold backing XAUt is a common and popular investment target, its volatility is much higher than that of USDt. Furthermore, issuing gold-backed stablecoins is more complex than fiat-backed stablecoins, making it difficult for the market value of XAUt to reach the scale of USDt.

The CEO of a certain exchange holds a similar view. He believes that USDt has become the de facto medium for cryptocurrency trading and is rapidly becoming the default token for margin or derivatives trading, which makes it difficult for XAUt, even when pegged to physical gold, to reach a market value comparable to that of USDt.

The CEO of another exchange is relatively optimistic, believing that gold-backed stablecoins represented by XAUt may reach a peak market value of hundreds of billions of dollars in the future.

The future market capitalization space of XAUt remains to be observed, but there are still some urgent issues that need to be addressed in its development. For example, in the context of a gold supply shortage, Tether's ability to prepare gold is in question. It has been reported that during the pandemic, disruptions in international logistics caused Tether to face a "gold source" shortage issue.

After "Coin Reserve" and "Peer-to-Peer Electronic Cash" narratives have firmly taken root, can Tether regain the title of "Digital Gold"? We shall wait and see.