Even as the price of gold retreats from a record high, stabilizing around $4,100 per ounce, tokens whose value is pegged to the metal are gaining popularity in crypto markets. But not everyone is buying 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.
To Binance co-founder and former CEO Changpeng Zhao, however, these tokens are only as good as the promise behind them.
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“Tokenizing gold is NOT ‘on chain’ gold,” CZ wrote in a post on X. “It’s tokenizing that you trust some third party will give you gold at some 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 such as the dollar.
A recent report from NYDIG pointed out that even dollar-pegged tokens like Circle Internet’s USDC and Tether’s USDT can break their pegs during times of extreme market stress. To NYDIG, terms like “peg” imply a guarantee that isn’t there.
Indeed, during the recent $500 billion crypto market sell-off, Ethena’s USDe plunged as low as $0.65 on Binance and saw declines on other exchanges, while USDC and USDT traded above $1.
Tokenized gold, while appealing as a hedge, may carry the same risks in disguise.
“It’s a ‘trust me bro’ token,” CZ added. “This is the reason no ‘gold coins’ have really taken off.”
Even the largest according to CoinGecko, Tether gold, has a market cap of just $2.1 billion. Compare that with its dollar stablemate, USDT, at $183 billion.