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Blockhain.com Tuesday announced DGLD, a digital asset that represents physical gold locked up in a vault in Switzerland—all secured with the Bitcoin blockchain.
Each DGLD token represents 1/10th of a troy ounce of gold. Before the creation of a new token, gold is allocated and put in the vault. The network is backed by $20 million in digitized gold, and tokens will be available to on Blockchain.com’s exchange, The PIT, later this year, the company said. It will not be available to Canadian and US customers.
The system is built on CommerceBlock’s Ocean sidechain platform, which cryptographically secures and validates each token on the Bitcoin blockchain. DGLD is built for both retail and institutional gold purchasers. Investors include Coinshares, Europe’s largest digital asset manager, and MKS (Switzerland) SA, a trader of precious metals.
New wine in an old bottle
Though this might seem like a new idea, “digital gold” is a huge industry. Here are some other great crypto cash-for-gold programs that are going on in the world. In fact, DGLD is relatively small.
Paxos, the crypto company known for creating stablecoins, launched its own gold-backed stablecoin earlier this month. PAX Gold (PAXG) is regulated by the New York State Department of Financial Services, one of the toughest regulators in the US. That, says Paxos, makes its offering the “first regulated gold product.”
But it’s not the only gold-backed token from a wealthy background. The Perth Mint Gold Token (PGMT), a new token by the 120-year-old mint, was launched late last week. "Our aim is to make gold accessible to as many people in as many places as we possibly can in the easiest way possible," The Perth Mint chief executive officer Richard Hayes said at the time.
The British Royal Mint took the opposite approach, working with the Chicago Mercantile Exchange to transact blockchain tokens called Royal Mint Gold (RMG). Just like DGLD, gold is stored in bullion vaults. But the program was blocked last year as governments were, unfortunately, not so bullish for Bitcoin as they were for, er, bullion.
Taking the luster off gold
Perhaps a prescient move; gold-backed crypto projects like this have struggled, according to a report by TheNextWeb, which found that two-thirds of stablecoin projects that turned out to be unstable were backed by gold.
But gold-backed crypto is in demand, it just depends where you look. Some Islamic Finance scholars believe that crypto is not Shari'ah compliant because it is not backed by a physical asset and thus its value is speculative. Shari'ah principles don’t allow people to profit from interest payments, and so crypto is on thin ice. In fact, this is what led Egypt’s Grand Mufti—Sheikh Shawki Allam—to support a ban on Bitcoin trading in 2017. Both OneGram and HelloGold issue gold-backed cryptocurrencies for this reason. For each OneGram coin, a gram of gold is held in a physical vault.
Though the Bitcoin-equals-gold solution works for some, others prefer to pit the two against each other: when UFC fighter and crypto wizard Ben Askren posted a poll to his 270k Twitter followers—admittedly, perhaps crypto-lovers themselves— they’d take $10,000 in gold or crypto that they couldn’t touch for a decade, 50 percent of 64,185 voters chose Bitcoin, and 41 percent voted for gold. Perhaps gold should be pegged to Bitcoin instead.