Commodity Backed Stablecoins have some exceptional properties which have made them very popular. However, cryptocurrency has frequently been criticized for its volatility, leading to calls for more stable digital currencies. Hence the rise of stablecoins, including commodity-backed stablecoins.
The first so-called “stablecoin” ever released was BitUSD, which was created in July 2014. Since then, stablecoins have exploded in popularity. They provide many advantages of cryptocurrencies without the wild price swings of cryptocurrencies like Bitcoin.
Some stablecoins have faced a lot of criticism. USDT, a US dollar stablecoin issued by New York-based company Tether, has repeatedly questioned its US dollar reserves. At times, it has admitted that it doesn’t keep 100% reserves, leading to fears that its price could collapse.
These fears became a reality in 2022. The cryptocurrency market crashed, leading to the collapse of a significant stablecoin called UST. UST was operated by Luna, a Korea-based firm, and was an algorithmic stablecoin, meaning no tangible assets supported its value.
Most stablecoins are linked to fiat currencies like the US dollar, but inflation is reaching alarming levels even with the dollar.
These concerns have sparked a growing interest in stablecoin tied to tangible assets. By linking the price of a cryptocurrency to tangible assets, it is possible to achieve greater levels of price stability. Following is a list of some of the most prominent commodity-backed stablecoins.
Most of the first commodity-backed stablecoins were pegged to gold. Dozens of gold-pegged stablecoins have appeared, some with better transparency than others. One of the most prominent is PaxGold (PAXG), a token issued by New York-based gold custodian Paxos. PAXG tokens are based on the Ethereum network’s ERC-20 standard.
SIlverToken has been selling tokenized ownership in physical silver since 2017. SilverToken owners can redeem SilverTokens for pure silver bullion at any time or immediately sell the tokens for the spot price of silver at any time. SilverToken is registered in the Cayman Islands, and silver reserves are held in 12 different secured vaults in 8 politically stable countries. Like PAXG, SLVT is based on the Ethereum network, giving holders a wide range of options for storing and transferring tokens.
Although platinum has a much shorter history than gold or silver, it’s still popular with some investors. Platinum has a number of unique industrial applications which drive strong demand. There is also some demand for platinum jewelry, although far less than with gold or silver. PlatinumCoin is also based on the Ethereum network and offers ERC-20 tokens which are redeemable for physical platinum.
Commodity-backed stablecoins can also have a political dimension. Russian oligarch Vladimir Potanin, the owner of Nornickel, a large Russian mining company, announced interest in commodity-based tokens as early as 2019. International sanctions on Potanin and Russia provided additional motivation to find alternatives to the US dollar.
Nornickel is tokenizing palladium via Atomyze, a tokenization platform backed by Potanin. Atomyze is based on Hyperledger Fabric, an open-source blockchain project developed in part by IBM.
Aluminum is one of the most important industrial metals today, used in aircraft, motors, appliances, and electronics. This ensures high demand and stable prices, making aluminum a good store of value.
Luminium coin was founded by economist Dr. Richard W. Rahn, who expects inflation to continue to rise. Each token represents 1 kilogram of pure aluminum ore. Luminium coin charges holders storage fees for their vaults, unlike SilverToken.
Copper is another metal well known for its industrial uses. The team behind Cuprum Coin thinks copper could be a valuable addition to digital portfolios.
Cuprum coin is based on the Tezos blockchain. Tezos is less developed than Ethereum, but still has a robust developer ecosystem. The token is backed by ultrafine copper powder, which is used in the aerospace and pharmaceutical industries. The use of copper powder as loan collateral is also common in the financial industry.
Nickel prices shot up dramatically in April of 2022, igniting interest in nickel as an investment. It’s not surprising, then, that Nornickel is also issuing nickel-backed tokens as part of its tokenization efforts.
The diamond market is huge, with an estimated market capitalization of over $1 trillion USD. D1 Coin is banking on investor interest in the financialization of precious stones.
D1 Coin started offering fractional diamond ownership in 2018 when it purchased 1500 investment-grade diamonds. The tokens are based on the Ethereum blockchain.
In February of 2018, the government of Venezuela launched the Petro. Though it’s not technically a cryptocurrency, the Petro is meant to be a digital representation of Venezuela’s massive oil and gas reserves.
So far the execution of the Petro has been less than stellar. Commodity-backed currencies depend on the trustworthiness of the issuer, and the Venezuelan government is not seen as stable or reliable. Still, it would not be surprising to see more oil-backed currencies in the future as dollar dominance continues to decline.
Elysian is an interesting application of the DAO – (Decentralized Autonomous Organization). It acts as a crowdfunding platform for a group of investors to purchase residential apartment towers in Korea. As of July 2022, Elysia’s portfolio was valued at over $370 million USD, with contributions from more than 85,000 investors.
As time goes on, tokenization is getting easier, and people are starting to trust the technology backing commodity-based stablecoins more and more. There are so many advantages to tokenization that the market will likely see rapid growth in the coming years.
Silver is one of the best commodities to invest in because, unlike industrial metals and real estate, it has a long history of use as money. Even if an economic crisis threatens industrial commodities, real estate, and even oil, silver will likely hold its value.
The rapid expansion of the market also provides opportunities for profit beyond the investment value of silver. The more people invest in and use SilverToken, the more SilverToken’s value will increase since 50% of transaction fees go toward increasing the silver holdings of all token owners.
Commodity-based tokens are a great way to hedge against financial recession, and now is an excellent time to invest and get in ahead of the curve.