What is a gold-backed stub coin? And how does it work?
Gold-backed stubcoins are digital currency fixed in physical gold reserves and are designed to maintain stable value. The concept of gold-backed digital currency goes back to the early days of cryptocurrencies, with developers aiming to create a reputable and valuable repository.
Stubcoins supported by each gold represent a certain amount of gold. For example, one token may be linked to one troy ounce of gold. A troy ounce is a unit of weight that is explicitly used to weigh precious metals such as gold, silver, and platinum. Equivalent to 31.1034768 grams.
Third parties usually retain gold reserves for security and transparency. The issuing entity is responsible for maintaining an equal amount of physical gold for each token in the circulation.
The price of the token is closely matched with the market value of gold. Buyers pay the spot price of the token gold. Similarly, if Stablecoin fails, the token holder can exchange the token for money. In fact, gold is settled for e-fiat transfers.
Depending on your jurisdiction, the regulator classifies gold-backed stubcoins as product-supported stubcoins or asset reference tokens (art). Examples of gold-backed stub coins include Tether Gold (Xaut), Paxos Gold (Paxg), and Alloy (AUSDT).
Did you know? On April 1, 2025, Tether Gold (Xaut) traded for $3,165. The market capitalization was approximately $780 million, with daily trading volumes of $11.03 million.
Benefits of Gold Backed Stub Coins
Gold-backed stubcoin combines gold stability with the flexibility of digital assets. Their blockchain-based nature benefits beyond traditional paper gold.
Below are some of the benefits of a gold-backed stub coin:
Flexible alternatives to physical gold: As a blockchain-based representation of gold, the stupid stubcoin of gold supports offers a more efficient and flexible alternative to retain physical bullion. Instant Global Transactions: Unlike traditional gold ownership, these tokens can be stored in cryptocurrency wallets that can be transferred instantly at nominal transaction fees and traded globally. Gold-backed stubcoins stored in blockchain networks are more secure. Programmability: Gold-backed stubcoins are programmable as they reside in blockchain networks such as Ethereum. This allows you to interact with smart contracts and work with distributed apps (dapps). Difference: Splitting physical or paper gold is challenging. However, a single token can be split into several decimal points. This can be recorded on the blockchain. More Accessible Gold: Gold backing tokens make it easy to access gold. Ounces of gold may be expensive, but you can easily purchase a 0.001 token. Interoperability: Release tokens on a widely used network like Ethereum allows you to instantly operate on Dapps, Defi platforms and wallets supported by the network.
Diversifying funds: Investing in Stablecoins with money support will allow you to diversify your funds. This is a unique type of asset that protects you from declining currency values.
What are USD-backed stub coins and how do they work?
USD-backed stubcoins are cryptocurrencies that are fixed in US dollars and designed to maintain stable value. Typically, each token is supported by a comparable amount of US dollars or cash equivalent assets stored by a financial institution or trust.
For each USD-supported Stablecoin issued, the issuing entity must maintain a corresponding reserve amount to ensure its value. This allows the holder to always redeem the token for an equivalent amount. Examples of USD-backed stub coins are Tether (USDT), USDC (USDC), and Binance USD (BUSD). All of these are used in transactions, payments and Defi.
You can buy and sell Stablecoins through crypto exchanges such as Binance and Coinbase. To purchase, create an account, complete verification, deposit a Fiat or crypto, and select a stub coin, such as USDT or USDC. To sell, go to the trading section, select Stablecoin, and exchange it for Fiat or another crypto. Some wallets and peer-to-peer (P2P) exchanges also support Stablecoin transactions.
Did you know? The EU market in Crypto-Assets Regulations (MICA) forced Crypto Exchange to abolish USDT and other non-compliant, ridiculous stubcoins, leading to growth in the market for stubcoins responsible for the euro. USDC continues to be a prominent USD alternative in the region.
Advantages of USD-supported stub coins
USD-backed stubcoins offer several benefits and become an important part of the crypto ecosystem. By combining the reliability of Fiat currency with the efficiency of blockchain, USD-backed stubcoins play a key role in digital finance.
Below are some of the advantages of USD-backed stubcoins:
Stable Value: Unlike traditional cryptocurrencies that experience high volatility, stability maintains stable value, making it an ideal unit for payment, especially in exchange for goods and services. Smoothness and Accessibility: USD-backed stability is widely accepted beyond crypto exchanges, payment platforms, and debt application. This allows traders to quickly move their money between assets without reducing transaction costs and delays. Transparency: Publishers usually provide regular audits and reports. This transparency builds trust between users, publishers and regulators. Fast and low-cost international payments: Operating on blockchain networks, USD-supported blockchain networks promote high-speed and low-cost international payments without relying on traditional banking systems. This makes them a favorable option for remittances and cross-border trade. Market Slow: USD-supported stability provides stability during the period of market volatility. Investors and traders often convert volatile crypto holdings into stubcoins to protect their value, without ever leaving the crypto market entirely.
Still, please note that Stablecoins may sometimes be obsolete due to some macro and microeconomic factors.
Macro factors include changes in the economic situation, such as inflation and increased interest rates. Microvariables include differences in market conditions, such as changes in underlying collateral and liquidity issues.
When Silicon Valley Bank failed in March 2023, USDC’s stubcoin deviated from PEG as it had a $3.3 billion reserve held there.
Did you know? There are four types of Stablecoins: Fiat-ollateralized, Crypto-ollateralized, Algorithmic, and Commodity Coloratized. The stability of the algorithm gradually faded away.
Key differences between gold backing and USD-supported stub coins
Gold-backed USD-backed tokens are ridiculous tokens, but differ in a few ways. This comparison explores basic differences and focuses on backing assets, price stability, liquidity, adoption and key use cases.
Backing Assets: Physical Gold vs. Fiat Reserve
Gold-backed USD-backed stubcoins differ primarily in terms of collateral that supports their value. Gold-backed stubcoins are usually tied to physical gold at a fixed ratio, while some USD-backed stubcoins are supported by US dollar reserves, short-term cash deposits.
Price stability: long and short term
The value of a gold-supported stable varies depending on the market price of gold. This can experience short-term volatility, but in the long run, you tend to be grateful. The USD-backed stub coin keeps 1:1 peg in dollars, ensuring more predictable short-term stability. Their value remains stable unless external factors such as regulatory changes or mismanagement of reserves affect PEG.
Liquidity and Adoption: Using USD backing in Defi applications
USD-backed stubcoins are more liquid and are widely accepted in the crypto ecosystem, including exchanges, payment systems, and Defi applications. They are frequently used for trading and lending. Furthermore, many Latin American countries, such as Bolivia, employ USDC for payments. While helping to maintain value, gold-backed stubcoins are not integrated into the less common Defi protocol due to concerns of low liquidity.
Use Case: Value Storage
Gold-backed stubcoins act as hedges against inflation and appeal to investors seeking growth. USD-supported stubcoins are preferred over investors looking for stability and value storage. USD-backed stubcoins are used for everyday trading, trading and financial services thanks to their immediate liquidity and ease of use.
Regulatory Considerations: Compliance
Gold-backed stubcoins and Fiat-backed stubcoins are subject to different regulations due to their underlying assets. For example, certain regulations such as the guidelines and establishment of national innovation in the US Stabcoin Act (Genius Act), and in the US, the well-established transparency and accountability for a better ledger economy (stable) law due to the US piloting measures. However, as of March 31, 2025, there are no specific regulations regarding gold-supported stubcoins, but it is expected to comply with regular banking and financial regulations.
Can a gold-backed stub coin exceed USD-supported coins in adoption?
Two factors that support gold-backed stubcoins are their properties of inflation resistance and long-term stability. As Bitcoin advocate Max Kaiser points out, Gold enjoys greater global trust than the US dollar, especially among countries with ties to the US.
But is this enough for gold-backed stubcoins to go ahead of their more well-known competitors?
Supported by USD, which is often scrutinized during the Biden administration, Stubcoin enjoys the support of the US government led by President Donald Trump. With current distributions, USD-backed stubcoins view the US dollar’s status as a powerful tool to maintain the global reserve currency. The Trump administration has been crypto-friendly since taking over, but the support for genius law and stable conduct awaiting Congress’ approval is further testimony to this approach.
Treasury Secretary Scott Bessent highlights Stablecoins as a strategic tool to maintain the situation of the dollar’s reserve currency. Federal Reserve Governor Christopher Waller reflects this sentiment, supporting Stubcoin as a way to support US dollar hegemony.
Still, countries including US arch rivals, Russia, China and Iran, may prefer the stupid, stupid, stupid idiots of US support, as bullion-driven coins help limit the impact of the US dollar. According to Keizer, China and Russia collectively hold about 50,000 tonnes of gold than officially reported. In the case of truth, this gold can be used to deploy stablecoins of gold support.
If gold-backed stubcoins win a wider adoption, they can challenge the US government’s efforts to maintain dollar control through stubcoins. Therefore, Stablecoin Issuer Tether introduced Alloy (AUSDT) in June 2024. This is a digital asset of gold support related to Tether Gold (Xaut), and a token that represents a physical gold claim.
The gold-backed stubcoin resembles the gold-backed US dollars from before 1971. It was the year when President Richard Nixon abolished the conversion of the US dollar into gold. Xaut has enjoyed a price rise of 15.7% since the start of the year, suggesting the absurd, ridiculous possibility of bullion support.
Gold-backed stubcoins present a compelling alternative, but the battle for control between gold and USD page stubcoins remains ongoing, subject to geopolitical factors, financial policies and market demand.
