Even as the price of gold retreats from an all-time high and stabilizes around $4,100 per ounce, tokens whose value is tied to the metal are gaining popularity in the crypto markets. But not everyone buys the premise.
The total market capitalization of gold tokens has risen to $3.86 billion, driven by strong performance from and Paxos Gold (PAXG), according to CoinGecko data.
For Binance co-founder and former CEO Changpeng Zhao, however, these tokens are only as good as the promise behind them.
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“Tokenization of gold is NOT ‘on chain’ gold,” CZ wrote in a post on X. “It’s symbolic that you trust a third party to give you gold at a later date, even after their management changes, maybe decades later, during a war, etc.”
Buyers’ reliance on centralized issuers to deliver physical gold, potentially decades into the future and under uncertain circumstances, raises concerns similar to those facing stablecoins, whose value is typically pegged to currencies like the dollar.
A recent report by NYDIG pointed out that even dollar-pegged tokens like Circle Internet’s USDC and Tether’s USDT can break their pegs in times of extreme market stress. For NYDIG, terms like “point” imply a warranty that isn’t there.
In fact, Athena’s USDe fell as low as $0.65 on Binance during the recent $500 billion crypto market selloff and saw declines on other exchanges, while USDC and USDT traded above $1.
Tokenized gold, while appealing as a hedge, can carry the same risks in disguise.
“It’s a ‘trust me bro’ token,” CZ added. “This is why no ‘gold coins’ have really taken off.”
Even the largest according to CoinGecko, Tether gold, has a market cap of only $2.1 billion. Compare that to its dollar stabilizer, USDT, at $183 billion.
