There is a buying frenzy in the gold market that has accelerated the price of the precious metal by more than 80% over the past 12 months, making it one of the best performing assets.
However, investors are unaware of a hidden threat forming beneath the surface, according to Björn Schmidtke, CEO of Tether gold treasure company Aurelion (AURE).
The easiest way for someone to buy gold is to buy what Schmidtke calls ‘paper gold’ or shares in a gold exchange-traded fund. When they buy such stocks, investors think they’ve bought the physical bullion, when the reality is they’ve bought “a little piece of paper that says, ‘I owe you gold.’ And people collectively agree that this piece of paper has value,” he said in an interview with CoinDesk.
While this avoids the hassle of owning and storing a physical bullion, according to Schmidtke, this is where the real problem starts.
‘Seismic Event’
Think of it this way: an investor buys the “paper gold” and thinks they now own a bullion. Although redeemable, the investor does not know which bullion they own. There is simply no proof of owning a bullion other than an investor buying a share of the ETF.
Schmidtke estimates that 98% of gold exposure is effectively unallocated in IOUs, where investors have billions of dollars worth of pieces of paper meant to be backed by the gold they represent, but don’t know what bullion they own.
This is fine for now because the current system has worked for decades as few investors ever demand delivery.
But let’s say a cataclysmic event occurs where fiat currency is exponentially devalued and people rush to get their physical gold they thought they were buying when they bought their “paper gold”.
When such a “seismic event” occurs and the investor wants their bullion, where is the proof that the bullion is owned by that investor and how are these bullion delivered to the investors?
“You simply cannot move a few billion dollars of physical gold in a single day,” he said. And if these bullion bars lack proof of ownership, it creates an even bigger logistical bottleneck that could lead to a market crash if panic drives investors toward redeemable assets. In such a crisis, the price of actual gold may rise while paper gold prices lag, leaving derivatives holders unable to settle.
“The risk is real. We’ve already seen it in the silver market,” he said, pointing to past events where physical premiums rose while spot prices remained flat. “We think we’ll see it in the gold market as well,” if such an event occurs.
This is where onchain gold comes into play, according to Schmidtke.
Proof of ownership
Consider a theoretical real estate ownership scenario.
Let’s say a real estate developer offered a unique way for investors to purchase housing units. If they buy 10 shares in the project, they receive an instant IOU promising the delivery of 10 housing units. This developer has also promised the same to other investors. The whole process is completed by simply buying shares in the project, without signing a title deed.
Sounds easy, right?
Now, when it comes to taking possession of the homes, because the investors did not take ownership but bought shares, there is no searchable proof of which units they bought and developers can try to deliver them randomly, creating a nightmare bottleneck where the homes will probably be delivered to the investors, but it will take considerable time and with no guarantee of who will get them.
Schmidtke says that onchain gold ownership solves this by eliminating the bottleneck in the supply of physical gold.
To redeem physical gold, investors would have to physically move it, while tokenized gold, like XAUT, decouples ownership from the physical movement of the metal.
Because each XAUT token is inextricably linked to a specific, assigned gold bar sitting in a Swiss vault, the “deed” to that gold can be transferred globally in seconds on the blockchain.
It is similar to the theoretical property problem. If, instead of just buying shares, an investor signed a deed from the start, they would know exactly which units they are getting, and it would be easier for developers to quickly sort those deeds and deliver those units to their rightful owners on time.
With the onchain gold token, these allocations will be searchable and redeemable. Although the actual physical delivery may still take time, at least investors can trust that their gold with their title deed remains safe and traceable.
A ‘sustainable’ ownership
That point of view helps shape Aurelion’s strategy.
The company has revised its treasury to hold a blockchain-based token backed by physical gold stored in Swiss vaults.
Schmidtke claimed that XAUT delivers the speed of digital transactions without sacrificing physical settlement. Unlike paper gold, tokens represent allocated bars and are fully redeemable. “How you own gold matters as much as whether you own gold,” he said.
Schmidtke sees XAUT as early in its adoption cycle with room for scaling.
Asked if Aurelion would consider selling its gold, Schmidtke said only if market conditions present a “significant and sustained discount” to the firm’s underlying holdings. For now, the company is focused on long-term compounding.
“This is not a short-term arbitrage strategy,” he said. “It’s about building a sustainable Tether Gold stock that investors can participate in over time.”
Aurelion also plans to raise more capital over the next year to expand its gold coffers.
The company, according to CoinGecko data, currently holds 33,318 XAUT tokens worth about $153 million.
