In a recent research report seen by CoinDesk, Bank of America analysts pointed out the recent surge in real-world asset tokenization, with particular attention to the market for tokenized gold, and stated that this is likely to be a key driver in the wider adoption of digital assets.
The report noted the cost and liquidity-related drawbacks of traditional markets offering gold exposure, such as exchange-traded funds (ETFs), futures products or the purchase of physical gold through a dealer.
In contrast, “tokenized gold provides exposure to physical gold, 24/7 real-time settlement, no management fees and no storage or insurance costs,” wrote analysts, Alkesh Shah and Andrew Moss. Barriers to entry are reduced through low minimum investments, and “fractionalization enables the transfer of physical gold ownership and value that was not previously possible,” they continued.
The report noted further benefits which can be realized through the tokenization of gold and other precious metals, including increased liquidity and efficiency when rebalancing portfolios, and the addition of data points allowing traceability for ethically conscious investors.
As reported by The Block earlier this month, the market cap for tokenized gold recently returned to a level of over $1 billion, a value not seen since last August.
This market cap is split fairly evenly between the two major players in the market, with PAX Gold (PAXG) currently sitting on $520 million of the tokenized asset and Tether Gold (XAUT) posting a market cap of $492 million according to CoinGecko. PAX Gold, however, seems to show significantly more liquidity, with 24-hour trading volumes reaching as high as $22 million over the last week, compared to Tether Gold’s high of $7.4 million.
💡
Paxos Gold (PAXG) is backed by real gold reserves held by its issuer Paxos, a New York based company. Each PAXG token is linked to a 1:1 ratio to one troy ounce (t oz) of a 400-ounce London Good Delivery gold bar certified by London Bullion Market Association and stored at Brinks Security vaults in London.
The only other issuers of tokenized gold, according to Coinmarketcap, are Singapure based DigixDAO DGX token and Australia based Perth Mint Gold Token (PMGT), holding a market cap of around $2 million each. At the time of writing, the former had an unresponsive website, while the latter had a warning of project discontinuation running on its website.
Another project of gold tokenization that was announced last year, Comtechgold is a project under Dubai's DMCC Free Zone jurisdiction.
Gold-backed tokens are also on the agenda of central banks of countries to overcome the constraints of their monetary systems. US. Russia and Iran were in talks recently for a common gold backed curency to overcome US sanctions. Zimbabwe plans a gold-backed digital currency in a bid to tame the never-ending inflation.
The recent popularity of gold has got reflected in its current price which is close to its historical maximum.
Can digitalization bring the precious metal back into the mainstream? We continue to Observe this.
Members Discussion