Guotai Junan Research: What is the current status of gold stablecoin development?

Key Points:

The combination of gold and stablecoins has advantages, but future development also needs to overcome some obstacles. If the mechanism improves, gold stablecoins can serve the function of value storage, as well as payment and settlement functions under certain conditions.

Gold Stablecoin: The Quiet Rise of the "New Darling in the Crypto World"

After the US Dollar stablecoin became a hot "star coin" in the stablecoin market, gold stablecoins have also been quietly rising. As the name suggests, gold stablecoins are cryptocurrencies that are pegged to gold, and they share the same characteristics as other types of stablecoins, namely value stability and decentralization.

The gold stablecoin market currently presents a "dual hegemony" situation, with Tether's XAUT and Paxos' PAXG each holding nearly half of the market share. As of June 2025, the market capitalization of gold stablecoins reached $1.6 billion, accounting for about 0.67% of the total market capitalization of stablecoins, making it the third largest category of stablecoins after USD stablecoins and crypto-collateralized stablecoins.

Combination Advantages: Stablecoins Empower Gold Trading

Compared to other gold investment products such as gold ETFs and futures, the decentralized nature of stablecoins enhances the convenience of gold trading:

Reduce Time and Space Limitations: The gold stablecoin operates on the blockchain, enabling fast global transactions at any time;

Lowering Investment Threshold: The gold stablecoin corresponds to the ownership of gold bars, allowing for the fragmentation of gold bars during transactions, which can be divided up to six decimal places (approximately 0.02 yuan);

Reduce Transaction Fees: The gold stablecoin only charges a low transaction fee (for example, PAXG charges 0.02%).

The Development of Gold Stablecoins: Need to Overcome Three Types of Difficulties

First, there is a natural conflict between the monetary functional advantages of gold and stablecoins. Stablecoins primarily enhance the payment and settlement functions of currency, while gold plays more of a role as a store of value. The combination of gold and stablecoins in terms of monetary function appears to be somewhat forced.

Second, gold-backed stablecoins have not demonstrated their expected value-stabilizing properties. The number of holders of gold-backed stablecoins is extremely low, which results in a low trading turnover, shallow market depth, and a significant deviation from the London gold price.

Thirdly, the issue of credit verification for gold-backed stablecoins is contrary to the characteristics of decentralization and trustlessness pursued by blockchain. The regulatory frameworks for physical collateralized stablecoins in various countries remain lagging. The stablecoin bills passed in the United States and Hong Kong only cover fiat-backed stablecoins, leaving gold-backed stablecoins facing compliance uncertainties, which is a significant reason for investors' cautious attitude towards holding them.

However, if the mechanism improves, gold stablecoins can still serve the function of value storage, as well as payment and settlement functions under certain conditions.

Risk Warning: The gold stablecoin significantly deviates from the current price of gold, exposing investors and issuers to legal compliance risks.

1. Gold Stablecoins: The Quiet Rise of the "New Darling in the Crypto World"

After the US dollar stablecoin became the "star currency" in the stablecoin market, gold stablecoins have also been quietly rising. As the name suggests, gold stablecoins are cryptocurrencies pegged to gold, and they share the same characteristics as other types of stablecoins:

1) Stable Value: Pegged to physical gold, each token represents a specific weight (such as 1 troy ounce) of physical gold, which is stored by a third-party custodian to ensure transparency and security.

2) Decentralized: Gold stablecoins, like other stablecoins, are issued based on blockchain technology and achieve digital mapping of gold ownership through smart contracts. They support fast transactions and divisible transfers, while also exhibiting strong anonymity.

The gold stablecoin market is currently characterized by a "dual hegemony" situation, with Tether's XAUT and Paxos' PAXG each holding nearly half of the market share. XAUT and PAXG were issued in January 2020 and September 2019, respectively, and both saw a rapid increase in issuance in 2021 due to the surge in the cryptocurrency market. As of June 2025, the market value of gold stablecoins reached $1.6 billion, accounting for approximately 0.67% of the total stablecoin market value, making it the third largest category of stablecoins after US dollar stablecoins and cryptocurrency collateralized stablecoins.

2. Combined Advantages: Stablecoins Empower Gold Trading

Compared to gold ETFs and futures, the decentralized characteristics of stablecoins enhance the convenience of gold trading:

1) Reduce time and space limitations: Gold stablecoins operate on the blockchain, enabling instantaneous global transactions at any time, whereas gold ETFs and futures trading are subject to certain time and space limitations based on specific exchange rules.

2) Lowering Investment Thresholds: Gold stablecoins correspond to ownership of gold bars, and investors can request conversion to physical gold once the number of stablecoins they own reaches a certain threshold. At the same time, gold stablecoins can also realize the fragmentation of gold bars during trading, which can be split up to six decimal places (approximately 0.02 yuan), significantly lower than the investment thresholds of gold ETFs and futures.

3) Reduce Transaction Fees: Gold stablecoins offer lower transaction costs compared to gold ETFs and futures, which typically charge management fees, custody fees, and transaction fees (for example, domestic gold ETFs generally charge 0.2%). Gold stablecoins only charge relatively low transaction fees (for instance, PAXG charges 0.02%).

3. The Development of Gold Stablecoins: Need to Overcome Three Types of Difficulties

After 2022, the development of gold stablecoins fell into stagnation, with the issuance of XAUT tokens no longer increasing after March 2022, while the issuance of PAXG tokens first declined and then slowly increased, with the growth rate continuously slowing down (Figure 2). The development of gold stablecoins needs to overcome three types of difficulties:

First, there is a natural conflict between the monetary functional advantages of gold and stablecoins. Stablecoins are primarily used in cross-border B2B settlements, offshore market circulation, and cryptocurrency trading, which enhances the payment and settlement functions of currency, while gold primarily serves as a store of value. Therefore, compared to the seamless fit of the US dollar and stablecoins in terms of monetary functions, the combination of gold and stablecoins seems rather forced.

Secondly, the value stabilization function that gold-backed stablecoins should play is relatively weak. Compared to Bitcoin and dollar stablecoins (such as USDT), the number of holders of gold-backed stablecoins is extremely low. The total number of holders of XAUT and PAXG is less than 50,000 wallet addresses, indicating a high concentration of ownership in gold-backed stablecoins. This leads to a lower trading turnover rate, shallower market depth, and a higher deviation from the London gold price. When the "stability" attribute of gold-backed stablecoins is weakened, investors may prefer to hold gold ETFs or futures and other alternatives.

Thirdly, there is a credit verification issue with gold-backed stablecoins. The gold reserves owned by the issuer serve as the value guarantee for gold-backed stablecoins, which requires reliance on centralized custodians and auditing institutions for storage and verification. For example, in 2022, PAXG was questioned for having issued a number of tokens far exceeding the amount of gold reserves held by the issuer, leading to a wave of redemptions. Currently, the regulatory frameworks for physical collateral stablecoins in various countries remain lagging. The stablecoin bills passed in the United States and Hong Kong only cover fiat-backed stablecoins, leaving gold-backed stablecoins facing compliance uncertainties, which is also a significant reason for investors' cautious attitude towards holding them.

However, if the mechanism improves, gold stablecoins can still serve as a store of value, as well as for payment and settlement functions under certain conditions.

4. Risk Warning

Gold stablecoins have deviated significantly from the current price of gold, and investors and issuers face legal compliance risks.