For the past several years, Bitcoin and other decentralized cryptocurrencies have grown in popularity. Even so, many are still unsure about trading these digital tokens. This apprehension is primarily due to the high volatility cryptocurrency is infamous for and the risk of loss. As a result, some want their virtual currency to be pegged to a more stable asset, like dollars or gold. This type of crypto goes by the name of “stablecoin” and garners a lot of attention for its reliability.
Stablecoins are linked to various assets like dollars or precious metals. These include gold, silver, platinum, and palladium, and these unions create entirely new crypto-like Platinum Coin or Silver Coin. Because they are pegged to these metals and dollars, they experience less market volatility than cryptocurrencies like Bitcoin often do. Those who trade stablecoins do not typically suffer a huge loss when trading because stablecoins never drop below the underlying asset price.
Crypto backed by precious metals are gaining more attention and appreciation, which means that it is essential to understand what they are.
A brief overview of stablecoins
A ‘stablecoin’ is a cryptocurrency designed to restrain the volatility that investors frequently encounter when dealing with crypto. A separate asset often backs Stablecoins with a stable value, but they can also be supported by an algorithm. Consumers who want to buy or sell non-currency goods and services could see a significant price change either during the transaction or after it. Stablecoins provide everyone with an equal chance of success without a need for either party to return to fiat.
There is no one type of stablecoin. In fact, there are several, including the following:
- Fiat-backed stablecoins: These are stablecoins backed by fiat currencies, such as the Chinese yuan. This crypto keeps a reserve of that specific currency as collateral. Other types of fiat include precious metals (ex. silver and platinum) and commodities (ex. oil and corn).
- Crypto-backed stablecoins: Crypto can back other cryptos, which is the case regarding crypto-backed stablecoins. The coin retains an overcollateralized position to offset the increased relative volatility of backing stablecoins via crypto.
- Commodity-backed stablecoins: These stablecoins are kept stable with hard assets, with some examples including gold or real estate. Gold is by far the most used asset to collateralize stablecoins. However, many use diverse baskets consisting of precious metals.
There are a wide variety of gold-backed cryptocurrencies available on the market. Some examples are Tether Gold (XAUT), DigixGlobal (DGX), and Gold Coin (GLC). The latter is fractional, which means that one coin is worth a fraction of 1 gram of gold. As such, Gold Coin’s barrier to entry is exceedingly low. This is different from other coins — and gold itself — where the buy-in can be pricey.
Another example is Perth Mint Gold Token (PMGT). This crypto is backed by gold blocks from Western Australia’s Perth Mint and is one of the best gold-backed cryptocurrency tokens on the market. The validity of this cryptocurrency is ensured by the Australian government who corroborates the gold’s weight and purity.
Silver may not take the top spot for some due to gold’s general familiarity, but there are plenty of silver-backed cryptocurrencies out there. Silver Coin, Silverlinks (LKNS), and Silver Token are the three big ones.
Silver Coin is a fractionalized crypto whose first-rate security measures and inclusive nature make it the leading option for many investors. Those who invest in this stablecoin can redeem for 99.9% silver bullion whenever they want.
A single LKNS token is equal to 1 gram of 0.999 certified silver. The concept behind this particular silver-backed crypto is to allow investors to purchase digital silver as easily as any other cryptocurrency.
When it comes to Silver Token, each coin represents the ownership of silver at a rate of 1:1 with a single ounce of investment-grade bullion. This crypto creator holds 99.9% silver and follows the London Bullion Market Association standards.
While gold and silver are the more popular precious metals, they are not the only ones to back stablecoins. There is Palladium Coin, Rhodium Coin, Platinum Coin. Most precious metals have a stablecoin that is pegged to their value, which means that investors are not restricted to just gold and silver.