Stablecoins, once a troublesome breed of crypto due to impending regulatory restrictions, is seemingly re-emerging as a popular medium of exchange, and now, amid rising geopolitical and monetary uncertainty, is set to cater traders seeking to move various funds around. One of the reasons, why the pegged to real assets coins remain highly acclaimed is because it is technically easier to swap major stablecoins for Bitcoin or other cryptos, than it is to swap fiat currencies for Bitcoin (let alone other cryptos).

Back in January, we wrote that the report published in October 2021 clarified the regulatory statute of the U.S. Treasury Department & CFTC regarding “stable tokens”. That report outlined that the SEC (U.S. Securities and Exchange Commission) agreed with other U.S. agencies to propose legislation and govern the U.S. “stablecoin industry” (quote-unquote). Importantly, stablecoins have been a subject of focus by a series of U.S. regulatory bodies, as well as the U.S. President’s Working Group on Financial Markets.

Hence, the emerging stablecoins regulations, which we covered some time ago, makes new crypto issuers reluctant to peg their tokens precisely to USD, as it was assumed the default option several months ago. The reach for gold, a traditional hedge against geopolitical upheaval and inflation, is unsurprising. The soaring demand for gold-backed cryptocurrencies, though, is new.

Now, according to Reuters, coins backed by gold became an elegant way to lawfully bypass any emerging stablecoins’, which are typically pegged to the dollar to tame volatility, overregulation and become the newer benchmarks of this class of crypto assets. The largest of them to date, Pax Gold developed by the company Paxos, or PAXG (see chart below) , has jumped 7.4% in 2022, while main rival Tether Gold (XAUT) has leapt 8.5%. By contrast, Bitcoin (BTCUSD) has lost over 13% and Ethereum (ETHUSD) is down 20%. PAXG has seen its market value almost double to $627 million this year, while Tether Gold has risen 9% to above $209 million. By comparison, the latter’s eight-year-old sibling, dollar-pegged Tether – the world’s largest stablecoin – has a market cap of over $83 billion. Tether Gold has also been warmly welcomed by bigger investors, including whales with $1 million or more of cryptocurrency, using the token to change a portion of their holdings into gold. Are we witnessing the new emerging subclass of cryptocurrencies?

Over the longer time horizon, Tether gold has seen a 300% jump in its market cap since January 2021. At the same time, PAX Gold (PAXG) has seen approximately 400% hike in its market cap in the same time period. Their growth of this metric has far outpaced the rest of the cryptocurrency market – not only due to their inherently low volatility, but also because of the ease of getting into.

According to data from Messari.io and CoinMarketCap, daily PAX gold trading volumes ranged between $10 million to $520 million over the past month, compared to ether volumes which fluctuated between $8.7 billion and $25 billion in April. Dollar-pegged tether’s 24-hour volumes ranged between $35 billion and $92 billion.

Skeptics argue that both PAXG and Tether Gold have merely risen on the outskirts of a broader rush for safe havens; indeed, they have tracked the price of physical gold, which is up about 8.5% this year. PAXG is up around 4.5% at the time of writing since Feb. 23, when geopolitical turmoil in Europe started, versus gold’s 4%.

On the other hand, advocates of gold-backed stablecoins say they offer the ease of owning gold without having to worry about storing a physical coin – let alone ingots or gold bars, while eliminating the minimum margin requirements often required to trade gold on traditional markets. PAXG, for instance, requires a minimum investment of the equivalent of 0.01 ounce of gold, roughly $20, versus the $184 an investor would pay for each share of the SPDR Gold ETF.

So, all in all, gold-backed stablecoins de facto bolstered the credibility of cryptocurrencies as a whole.