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Gold Tokenized NFTs: How Do They Differ from Gold Backed Stablecoins?

source-logo  cryptoknowmics.com 20 June 2022 20:25, UTC

The idea of tokenization refers to attaching the value of an asset in the physical world to a Non-fungible Token (NFT) within a digital ecosystem. Gold tokenized NFTs and stablecoins carry the corresponding value in underlying gold assets stored in a vault in the real world. However, there are fundamental differences between the two classes of crypto assets. The following are notable disparities:

The Creation of Gold Tokenized NFTs and Stablecoins

The main difference between the two crypto entities is how they become part of the blockchain. NFTs depend on the creative process of a creator who designs unique features of a project that includes either art, audio-visual content, or popular text. The owner mints NFT by converting the new project into digital form to make it equally valuable on an NFT marketplace such as OPenSea. The asset then changes hands from one owner's wallet to another depending on how tradable it proves to be on the blockchain. Stablecoins acquisition occurs through purchase over centralized or decentralized exchange (DEX) systems that support different coins. Gold-backed stablecoins such as Tether Gold (AUXT) have a hedge against unpredictable price shifts of normal cryptocurrencies. The hedge comes from the coins being gold derivatives whose blockchain market behavior simulates the physical asset's price movements.

Liquidity Between Gold Backed Stablecoins and NFTs

The gold tokenized NFTs have a high liquidity level from their tokenization. The asset's value implies that gold of equal value is available in a secure vault to back its value in the digital arena. At any moment of ownership, the owner can request the backing gold asset be availed upon which the NFT ceases to exist on the platform. The liquidity of NFTs allows the user to own the physical asset outside of the blockchain wallet by providing provenance of ownership. On the other hand, gold-backed cryptocurrency presents difficult liquidity to track and implement upon request by the asset holder. The issuer holds the proof of liquidity of the coins; thus, it is almost impossible to track down. Many issuing firms do not have gold supplies to collateralize the entire stablecoin amount available fully. However, the only time when liquidity is necessary is when holders need compensation in gold of equal value if assets get lost.

Price Regulation Between Gold-Backed Stablecoins and NFTs

The gold tokenized NFTs have their market value tied to the gold standard exchanges. However, there are different blockchain elements that the owner leverages to prop up the price of their assets for better trading returns. The rarity rank and scarcity of a collateralized NFT asset within a valuable project increases its price by a reasonable margin. Therefore, the NFT's market value will move with changing user perception, making its underlying physical asset value shift in a controlled manner. Gold standard cryptocurrency prices depend on the stablecoin futures market values. The gold backing provides non-volatility under unstable markets. The issuer determines the initial coin value while the market movements define the futures value margins of the gold-backed crypto assets. The issuer decides how much value of gold should correspond to one coin, and you must buy or sell at the set rates.

Provenance Between Gold-Backed Stablecoins and NFTs

The NFT minting process involves allocating a unique digital certificate indicating the asset's proof of ownership and originality. Tokenizing the asset to the gold standard ensures that it shares a unique serial number with the corresponding gold asset tied to its value. The verifiable transfer history of the NFT means that it is traceable to the creator. The provenance element allows creators to earn royalties for future asset resale, with its rarity rank determining the royalty percentages earned. Stablecoins sold on crypto exchanges do not hold digital certificates that tie them to a unique owner on the blockchain. The coins bought are fungible and therefore, similar to the rest and do not present unique features that tell them apart from the rest. Therefore, the gold-backed stablecoins do not rely on a particular gold asset but instead on any corresponding value of gold assets.

Security Concerns for Gold-Backed NFTs vs Stablecoins

NFTs attract several security concerns that arise from copyright violations by creators who mint art or assets they do not own. The copyright holder can revoke the digital certificate indicating provenance and render the asset useless. The stablecoins encounter exposure to all blockchain security concerns, such as scams and price manipulation attempts.

Author’s Take

The non-fungible nature of NFTs makes them valuable assets that the owner can earn from depending on their demand on marketplaces like OpenSea. The creator sets the initial market value before other market conditions such as scarcity contribute to price readjustments. Stablecoins offered by exchanges such as CoinBase become part of the user's wallet and undergo trades as derivatives using futures contracts. The two classes of assets depend on the gold standard to become non-volatile in a highly volatile cryptocurrency ecosystem.