Gold Meets Dollar Again in Tether’s Newest Stablecoin
The new stablecoin allows investors to lock in gold and receive US-dollar-pegged digital tokens, offering a unique twist on traditional stablecoin mechanisms.
Tether recently unveiled Alloy Tether or aUSDT, a novel synthetic dollar stablecoin backed by gold. This stablecoin is overcollateralized by Tether Gold (XAUt).
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XAUt, a digital token backed by physical gold stored in Switzerland, enables users to trade gold virtually. Unlike physical trading, XAUt tokens can be traded around the clock from anywhere in the world. According to CoinGecko, XAUt maintains a market cap of $570 million, equivalent to 7,667.7 kilograms of gold, and mirrors the price of gold.
The Alloy Tether platform enhances Tether’s product suite by allowing users to lock in their XAUt holdings and receive aUSDT stablecoin pegged to the US dollar in return. This process mirrors the mechanism seen in other overcollateralized stablecoins like DAI from MakerDAO. However, the key difference here is the use of gold-backed tokens as collateral rather than cryptocurrencies like Ethereum.
To mint aUSDT, users need to be mindful of the Mint-to-Value (MTV) Ratio, which compares the value of minted stablecoins to the value of the locked assets. If this ratio hits the Liquidation Point of 75%, users’ positions could be liquidated. Essentially, up to $75 in aUSDT can be minted for every $100 of gold held as collateral.
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Mint-to-Value (MTV) Ratio = (Value of Stablecoins Minted) / (Total Value Locked or Backing Assets).
Both the minting and redeeming of the new stablecoin can be done automatically by traders through Ethereum smart contracts. The issuer suggests that arbitrage opportunities on price differences between the value of aUSDT and U.S. dollar will be enough to enforce the peg, provided there is enough liquidity in the markets.
aUSDT can be traded on secondary markets across both centralized exchanges like Bitfinex, and decentralized platforms. According to Tether’s recent statistics, 10 million aUSDT have been minted in just the past three days. The demand for the new stablecoin can pump up XAUt capitalization, which lags far behind Tether's flagship USDT.
Alloy Tether is just the first in a suite of new products that Tether has planned for its new digital asset tokenization platform, Tethered Assets, which is slated for launch by the end of the year. Paolo Ardoino, Tether’s CEO, explained that Tethered Assets is designed to emulate the price of other assets through various stabilization mechanisms. The new platform will facilitate the creation of diverse Tethered Assets, potentially including those that yield returns. With its significant resources, Tether is well-positioned to become an important player in this rapidly growing market.
aUSDT is a product of Tether subsidiaries Moon Gold and Moon Gold El Salvador, entities regulated under El Salvador’s new digital asset law. Tether and its sister company Bitfinex have multiple projects in El Salvador including managing the treasury of the country's bitcoin assets and tokenization of real estate. Also, the choice of El Salvador as the jurisdiction for the issuer might suggest that the new product is designed for regions with troubled domestic currency systems.
The company's website actively promotes the new stablecoin as an equivalent of the U.S. dollar of the Gold Standard era. "Stable currency value" and "controlled money supply" - all of the advantages listed on the website should appeal to users in countries with hyperinflation and troubled currencies. However, it is unclear what a backing with gold can add to a token pegged to fiat USD in terms of monetary economics.
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