Exploring the Niche Market of Gold-Backed Stablecoins

As geopolitical tensions fuel record highs in the price of gold, one might expect a surge in activity within the gold stablecoin market. However, historical trends reveal a rather subdued landscape in this niche subsector.

Tether’s XAUT and Paxos’ PAXG stand as the major players in the gold stablecoin market. Yet, compared to their dollar stablecoin counterparts, USDT and USDP, their market presence appears minimal. XAUT boasts a market cap of $580 million, while PAXG trails behind at just under $450 million.

XAUT’s supply has remained steady at around 246,500 units since March 2022, contrasting with PAXG’s declining supply from its peak of around 340,000 units in August 2022 to just 182,650 units presently.

Although trading volumes on centralized exchanges for these gold stablecoins have shown some increase, it’s important to note that the rise may be partly attributed to the escalating value of gold.

The 7-day moving average of trading volumes for both stablecoins reached relative peaks in mid-March but has since declined, despite the continued climb of gold prices. These peaks pale in comparison to previous highs, such as during the 2023 regional banking crisis.

While volumes have slowly risen since hitting a low in May, recent events have seen a slight uptick. PAXG experienced a significant jump in volume to $71 million on April 13, the highest level since May 2022, following reports of Iranian drone attacks on Israel. Similarly, XAUT volumes increased, albeit to a lesser extent.

Despite these developments, $71 million in trading volume remains relatively low for a crypto asset. In contrast, larger dollar-pegged stablecoins often transact billions of dollars a day on-chain alone. On centralized exchanges (CEXs), dollar stablecoin volumes are notably higher, given their widespread use as a primary quote asset.

In conclusion, the gold-backed stablecoin market remains a niche subsector, despite the recent surge in gold’s popularity within the broader market.

Featured Image: Freepik

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