What are the differences between gold pegged crypto and USD pegged crypto? Typically, a pegged crypto is a digital medium of exchange that is encrypted and secure.
Usually, the value of these specific crypto coins is linked to the value of another particular medium of exchange, which is either the fiat currency of a given country or gold.
Apart from the currency or asset the crypto coins are pegged with, the gold pegged and USD pegged crypto coins have a lot of differences between them. This article will inform you about them in detail.
The pegged crypto coins are designed to protect them from the significant and rapid changes in their value.
This in turn prevents the holders from experiencing any negative impact while trading with the crypto coins. Most of the crypto coins are linked to the US Dollars apart from gold and other assets.
In order to peg a crypto coin with an asset, the owners of the coins need to hold a fixed value of that asset.
This value should be enough to offer a guarantee that if the holders of the crypto coins want to convert all of it into that particular asset, they can easily do that.
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5 Differences Between Gold Pegged Crypto and USD Pegged Crypto
The exchange rate between these pegged currencies is established at 1:1 usually.
This means that when the value of the currency moves in one direction the value of the crypto coin also moves in that specific direction and to the same degree.
These pegged cryptocurrencies are usually less volatile as compared to the unpegged cryptocurrencies that are notoriously responsive to the perceptions of risk and other factors of the marketplace.
The similarities seem to end just there. The differences are more and quite notable. Here they are.
1. Definition
As it is clear from the term gold pegged cryptocurrency, it signifies that each unit of the digital currency is backed by a specific amount of gold.
This is usually equal to 1 gram of gold and this amount of gold is held in reserve by the company or a third party and usually is considered as a physical collateralized asset.
On the other hand, the USD pegged crypto coins have a specific amount of US Dollars held in reserve by a third party or the company.
2. Minimum Value
When it comes to the gold pegged crypto coins, the minimum value or baseline of the token will always be equal to the specific amount of gold held in reserve.
This means that the price of the coin can be more than the value of it. The significant advantage of these types of crypto coins is that it offers security against the base value of them plummeting. This is one significant reason for the high demand for gold pegged cryptocurrencies among the crypto investors.
However, in comparison, the value of the USD pegged crypto coins as well as the fiat currency itself usually remains the same. This means that it is quite difficult to create a demand among the investors as high as gold pegged crypto coins.
3. Risks
As for the risks involved in the gold pegged crypto coins, storing a large supply of gold physically can be a significant problem. It will also need a lot of space, safety measures and cost.
Therefore, investors need to make sure where it is stored and who stores it. This is important because if the gold disappears, the value of the coin does as well along with it.
On the other hand, the US Dollars with which a crypto coin is pegged do not have such issues regarding storing it. Traditional banks or other accounts with other financial institutions will be enough to store them.
However, some government regulators may not look kindly at the companies that create such crypto coins that are tied with the value of a currency of a central bank.
4. Issues
The good thing about the gold pegged crypto coin is that this derivative digital asset may have a higher value in comparison to the USD pegged cryptocurrencies.
However, the issue is that there should be a lot of transparency between the developers of the crypto coin, the third parties who hold the gold in reserve, as well as the investors. The larger is the trust, the easier it will be to build the value of the digital coins themselves.
The USD pegged cryptocurrencies are also quite good and reliable because they usually have a proper and valid license to provide such service. In addition to that, these companies also maintain a proper public record of the holdings.
However, there is a significant issue that these companies may run into. It is when the supply exceeds the demand the value of the digital coins collapses eventually.
5. Profits
Since the gold backed crypto coins can have a high value depending on the rise in the value of gold, as and when you sell off your holdings, you can make a considerable amount of profit.
In comparison, the issue with the USD backed crypto coins is that you may not make as high a profit when you sell off your holdings as you would have made by selling your gold backed crypto coins.
This is because your chances of making profits will be limited from either buying or selling your tokens since these will always be of the same value as the fiat currency.
Which is Worthier?
Just like any other type of investment, choosing between gold pegged cryptocurrencies and USD pegged cryptocurrencies is a matter of personal choice and preference.
However, if you are clueless about it then knowing a few specific facts about these two types of cryptocurrencies will surely help you a great deal.
Since the digital currency world is ever changing, it is pretty difficult to forecast which particular crypto coin will do excessively well in the future.
Moreover, new coins are introduced in the market all the time which makes it all the more difficult to predict the crypto coins that will even exist in the future.
Adding to the inconvenience and this unpredictability of crypto coins is its highly volatile nature. Check out Bitcoin and USD Coin.
As for the gold and USD pegged cryptocurrencies however, things are comparatively easier since there are a few specific facts and factors that may help you to determine which among the two crypto coin types is worthier to invest in.
The primary area of interest of the investors for the gold pegged cryptocurrencies is due to its relatively high stability of gold value which offers a cushion against rigorous fluctuations in price being a tangible asset.
This means that it is not like most of the other types of cryptocurrencies that have a speculative value.
Also, most of the gold backed crypto coins are ERC 20 standard tokens, with a few exceptions, which allow for redeeming them for gold.
This is one of the most significant reasons that investors find these blockchain based digital crypto coins backed by gold to be more appealing.
It is the scarce nature that offers a high value which in turn acts as a hedge to their portfolios against stablecoins that are bound by strict regulations or against the dwindling fiat currencies.
Another significant advantage of the gold backed crypto coins with respect to physical gold is that these coins can be subdivided into several parts. Each of these small parts can be transferred to another party to the exact amount.
However, historically, the gold backed cryptocurrencies have also struggled significantly due to systemic and other issues such as:
- Low liquidity which is because these specific coins are not traded usually across many crypto exchanges
- Dependence on central parties for custody and auditing of collateral which is against the fundamental decentralization property of cryptocurrencies and
- Finding out the proof of reserves which determines whether the particular company has the gold backing or claimed reserves or not.
In spite of these issues, the gold backed crypto coins have experienced a significant rise in their value and a few of these coins have even exceeded their parity with gold.
This has inspired the investors, even those who were reluctant beforehand, to take notice of these particular crypto coins.
This is due to the stability of the value of gold to which these crypto coins are pegged with.
It is due to this growing interest that more and more developers now plan to launch or have already launched crypto coins that are pegged either to gold, to the US Dollar, or to any other fiat currencies.
The primary intention is to make these coins more stable in comparison to other digital currencies that you may normally see.
People, however, tend to think that the USD pegged crypto coins are more stable and dependable since it is linked with a currency that is issued by the bank.
However, it is not fully true. Just like the gold backed crypto coins, to peg the coins to the fiat currency, one should be able to back up their claims by holding a specific amount in reserve at all times.
Therefore, if you want to own a large number of such coins, then you will have to hold a large amount of fiat currency in reserve.
This can often turn out to be a difficult challenge for many investors and drive them away.
Therefore, to do well and raise the interest of the investors on USD pegged cryptocurrencies, the developers will need to rely on the investors themselves.
This is because building up a reserve for holding such crypto coins will entirely depend on their fundraising efforts.
However, to simplify things, it can be said that the gold backed crypto coins are good to invest for those investors who are cautious and want to play safe.
This is a good option to invest for those who are looking for more secure investment avenues in the crypto world.
These specific crypto coins come with the investment structure of gold with its scarcity, upside potential and flexibility, which matches with the needs of the crypto world.
These specific crypto coins are also good for those investors who are uncomfortable and apprehensive about investing in cryptocurrencies or those who do not like fiat currency.
However, the USD backed crypto coins are not to be left out because these too have a very bright future since these coins are poised to be accepted as a standard of exchange all over the world.
A significant rise in the number of such crypto coins in circulation in the market is noticed not only in North America and Europe but also all over the world.
As more and more proprietary exchanges are added to the list the demand and supply both will rise which are the two primary factors that determine the worth of an asset.
Both the gold pegged cryptocurrencies as well as the USD pegged cryptocurrencies have significant issues.
However, both these currencies are quite popular in the crypto industry, but gold pegged crypto coins seem to have a slight edge over its counterpart, as of now.
Conclusion
Though the value of gold is considered to be more stable, the gold backed crypto coins do not necessarily mean to be the best option as compared to the USD backed crypto coin. That is why knowing the difference between the two is vital.
I have special interest in crypto and intend to help common people to gain knowledge about the digital asset as well as its potential. Follow Me at Linkedin.
