Shiny Gold-Backed Stablecoins: Glittering Glimpse Into A Small Corner Of Crypto Market

• Gold prices have soared to unprecedented levels, driven by escalating geopolitical tensions.
• The following is a snippet from CoinNerd’s Data & Insights newsletter.

If you’ve been keeping up with macro-oriented newsletters alongside CoinNerd’s updates, you’re likely aware of gold’s continuous ascent to record highs, fueled by ongoing geopolitical tensions.

With the recent surge in the value of the safe-haven asset, one might anticipate increased activity in the gold stablecoin market.

Historically, the gold stablecoin market has been rather subdued. The primary contenders are Tether’s XAUT and Paxos’s PAXG, but they pale in comparison to the popularity of their dollar-backed counterparts, USDT and USDP. Despite the recent surge in gold prices, XAUT boasts a market capitalization of $580 million, while PAXG sits slightly lower at just under $450 million.

XAUT’s supply has remained steady at around 246,500 units since March 2022, whereas PAXG’s supply has been on a decline from its peak of approximately 340,000 units in August 2022 to the current level of 182,650 units.

While there has been a slight increase in trading volume for these gold stablecoins on centralized exchanges, this uptick can be partly attributed to the rising value of gold.

The 7-day moving average of trading volumes for both stablecoins reached peaks in mid-March before declining, despite the continued rise in gold prices. These peaks were notably lower than previous highs seen during events like the 2023 regional banking crisis.

Following a low point in May, trading volumes have gradually increased. However, this past weekend marked a significant moment for PAXG, with its volume (un-averaged) surging to $71 million on April 13th, the highest level since May 2022, driven by reports of Iranian drone attacks on Israel sparking concerns of wider conflict. While XAUT volumes also saw a slight uptick, it was not as pronounced.

Nevertheless, $71 million in trading volume remains relatively low for a crypto asset. Major dollar-pegged stablecoins typically handle billions of dollars in volume daily on-chain alone. On centralized exchanges (CEXs), volumes for dollar stablecoins are significantly higher since many exchanges that lack USD support utilize these stablecoins as a primary quote asset. They are even favored on exchanges that do support USD, providing a crypto-native alternative for trading.

Consequently, it appears that the gold-backed stablecoin market remains a niche subsector, despite the recent surge in gold’s popularity in the broader market.

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* We hope this information will help you in your investment process, but this is not investment advice. Every investment carries risk, especially in this industry, so DYOR before making a decision.