Raw commodity-backed cryptocurrency tokens have the potential to further legitimize Web3 by bringing additional tangibility, utility, and stability to the space. These tokens could be categorized as stablecoins as they derive value from real-world assets, and their prices are pegged to specific units of essential natural resources. For example, a single PAXG token represents 1 ounce of physical gold held in Paxos reserves.
The tokenization of raw commodities also can take the form of NFTs, where one token gives a holder access to a certain amount of a resource. This piece will examine established and arising projects offering cryptocurrency tokens backed by raw commodities such as precious metals, oil, and even water.
XAUt – Tether Gold
Tether Gold is a gold-backed stablecoin issued by Tether, which controls USDT. XAUt has a market cap of nearly $500 million, and every individual XAUt token represents one ounce of troy gold stored in Swiss vaults. Tether Gold allows for digital ownership of a physical asset due to how Tether Gold bars are recorded on the Ethereum blockchain, and their value is digitized.
Tether Gold is cheap to invest in because it allows for fractional asset ownership and micro-equity; someone does not have to spend $2000 on an entire gold bar; they can pay $10 and buy a portion of a XAUt token. Tether Gold is also highly accessible as it follows the ERC20 token standard and is purchasable from the most prominent crypto exchanges.
Tether Gold connects specific gold bars with each on-chain address holding XAUt tokens. When XAUt is transferred between on-chain addresses, Tether Gold promptly reallocates the physical gold linked to each address to minimize the number of gold bars associated with each address holding XAUt. This ensures that each XAUt token always represents ownership of physical gold on a particular gold bar. As a stable store of wealth, investors can avoid the volatility of cryptocurrency while still gaining all its benefits like anonymity and decentralization; XAUt will make gold markets more flexible and liquid.
XAUt doesn’t just represent physical gold; it is also redeemable for physical gold. For example, when holders of XAUt choose to redeem their tokens for physical gold, they can have their gold delivered to any location in Switzerland. However, holders who decide to do this are subject to pay fees or minimum redemption requirements. Users must pass identity verification, agree to service terms, and meet purchase or redemption minimums to purchase or redeem XAUt from Tether Gold.
KAG – Kinesis
KAG is a silver-backed stablecoin whose value is linked to the current silver spot price, and each KAG token represents one gram of silver. The KAG token is issued by the Kinesis Blockchain Network, a fork of the Stellar network.
Kinesis supports high transaction speeds and low costs, allowing for minting and distributing Kinesis tokens. In addition, Kinesis uses a fee-sharing model to incentivize holders to maintain their tokens, with 20% of all transaction fees distributed equally among KAG holders.
The total supply of KAG is determined by the amount of physical silver held in Kinesis’ reserve, with each token being created as new silver is deposited. This ensures that the token remains fully backed by physical silver and eliminates the need for mining or other resource-intensive processes.
Kinesis conducts regular third-party audits of its holdings, ensuring transparency and accountability. KAG holders also have the option to redeem their tokens for physical silver, allowing for easy conversion between digital and physical assets.
All KAG tokens are secured across a global network of fully audited vaults. To ensure top-notch security, Kinesis collaborates closely with renowned vaulting partners, including Loomis Zurich, OZL Liechtenstein, and Brinks. In addition, Inspectorate International—a Bureau Veritas company and leading global physical commodity audit and inspection specialist—performs independent third-party audits of Kinesis vaults twice a year.
PDX
PDX is an oil-backed cryptocurrency that is designed to provide a secure and efficient platform for the trading of crude oil. PDX is intended to provide transparency, liquidity, and accessibility to the global crude oil market. Each token represents the net value of a minimum of 0.7 barrels of crude oil or its natural gas equivalent and is supported by a basket of oil and gas assets. This allows investors to invest in crude oil without dealing with the logistical challenges of storing and transporting physical oil.
One of the critical benefits of PDX is its ability to provide liquidity to the crude oil market. Unlike traditional oil trading, which requires physical oil delivery, PDX tokens can be bought and sold on cryptocurrency exchanges, providing investors an easy and efficient way to trade crude oil. In addition, it enables individuals and organizations to use a transparent peer-to-peer exchanged digital currency supported by the value of crude oil and natural gas, which are globally liquid and critical energy resources.
PDX is a regulation-compliant commodity-backed digital currency that aims to become a safe-haven tokenized store of value by giving holders intrinsic value in digital token form. As a result, the number of PDX in circulation and their supporting oil and gas reserves can expand to maintain an equilibrium between the USD price of a token and the value of oil or natural gas. PDX is managed by a transparent, experienced team that ensures applicable laws compliance.
Aquacoin
Aquacoin is a cryptocurrency backed by physical water resources, making it a stablecoin that mirrors the wholesale trading price of water per liter. Aquacoin enables investors to purchase shares in a secure and distinct stablecoin that has the potential for growth due to the rising trend in water prices. Aquacoin has partnered with Gillier Humanity, a charity run by Gillier Fiji Spring Water, committed to enhancing the quality of life and the economy of particular developing regions to access Gillier water sources. To provide initial value to the total supply of 100,000,000 coins in circulation, Aquacoin possesses one billion liters of Giller water’s physical artesian spring water as its asset backing.
Gillier Fiji Spring Water operates on a highly coveted source of artesian spring water, spanning 27 acres on Viti Levu, the largest island in Fiji. Due to the global scarcity of fresh spring water, it is a valuable commodity. In addition, the growth of the global bottled water market can be attributed to increased health awareness and changes in consumer lifestyles. The artesian spring water, concentrated in Fiji’s most extensive freehold spring water land, is continually replenished with each rainfall, resulting in an almost inexhaustible supply for current and future use.
This partnership automatically deducts a 5% fee from every coin transaction, including buying, selling, and trading. Half of this fee will be deposited into a shared account with Gillier Water projects that support the humanitarian foundation. The remaining half will be deposited into a separate account to stabilize the liquidity pool and benefit Gillier shareholders.
Closing Thoughts
In summary, the emerging trend of commodity-backed cryptocurrencies presents investors with a promising avenue for diversifying their investment portfolios. By linking digital currencies to tangible assets, such as water resources, energy, or precious metals, these cryptocurrencies offer a more secure and stable investment option than traditional cryptocurrencies. As our world becomes more digitized, commodity-backed cryptocurrencies are expected to gain more popularity and relevance.
