Stablecoins that are backed by commodities
Commodities are fungible assets that are exchangeable for trading in the same market. The most common commodity to be collaterized is gold which is a form of precious metals.
Gold and commodity-backed money has a long history for being a medium of exchange and a store of value, before being abandoned in the 1970s.
If we look at the gold standard, it was a monetary system that directly links a currency’s value to that of gold. A country on the gold standard cannot raise the volume of money in flow without increasing its gold reserves.
As the global gold supply raises only slowly and being on the gold standard would ideally hold government to overspend and increase in check.
No country presently backs its currency with gold but many countries have in the past which also includes the U.S.
For half a century beginning in 1879, Americans could trade in $20.67 for an ounce of the gold but US effectively abandoned the gold standard in 1933 and completely detached the connection between the dollar and gold in 1971.
There is a long ICO list which are backed by commodities.
For gold-backed stablecoin, one coin represents a specific value of the gold (for example, 1 token = 1 gram of gold). The physical gold itself is often stored in a trusted third party’s vault. While commodity-backed stablecoins are not as popular as fiat-backed ones, it provides a viable alternative for those who seek to transact in tokens backed by real, tangible value by way of precious metals.
There are also stablecoins that are backed by oil. An example is Petro coin, a coin backed by Venezuela’s oil reserves. Yet, there are many faultfinders that points to Petro coin being a cheat.
ADVANTAGES
Backed by Real Assets
Coin hodlers have choice to an asset that is physical and backed by real worth. They can convert these assets at the conversion rate to take ownership of real assets.
Stability
The price of the commodities is comparatively stable and so would represent a good essential asset for a stablecoin.
Liquidity
The tokenization of commodities carries greater liquidity that enables better price discovery.
DISADVANTAGES
Centralized
Third-parties such as the vendors, custodians and the project itself is needed to ensure the full-functioning of the system and increases the risks of a single point of failure.
Audit
An audit process is an expensive and time-consuming process that underscores the capabilities of a decentralized blockchain.
Here are the examples of the biggest commodity-backed stablecoin:
DIGIX GOLD TOKENS (DGX)
DGX is am Erc-20 token backed by physical gold that has been fully audited and is stored in a vault in Singapore, known as The Safe House. DGX is fully redeemable at any point of time.
The price of each token is fully reliant on the market price of gold. DGX is based on the Proof-of-Provenance algorithm where each gold bar is secured and its ownership/custodianship status is tracked accurately on the Ethereum blockchain. DGX is scheduled to be audited each quarter (every 3 months), which is a positive indicator.
DGX is created by a company called DigixGlobal. Fascinatingly, the Digix team created two tokens, Digix Gold Tokens (DGX) and DigixDAO Tokens (DGD).
DGD tokens are used as a form of support in DigixDAO’s control system to grow DGX’s adoption.
At this time, DGX tokens are largely used as collaterals and trading pairs by other crypto projects such as MakerDAO, Kryptono Exchange, Kyber Network, WeTrust, Monolith and many others.
The Digix team was formed way back in 2014 and includes the former CEO of Fujitsu Asia, Teo Hye Chng, as their chairman.
Tiberius Coin (TCX)
It is backed by not one commodity, but by a combination of 7 precious metals commonly used in technology hardware. The idea is that as these metals are increasingly used to make technology such as solar panels and electric cars, TCX coins will go up in value.
SwissRealCoin (SRC)
It is another example, which is backed by a portfolio of Swiss real estate. Token holders can even democratically vote on the investment choices.