A New Way Of Investing In Precious Metals: Gold And Silver-Backed Stablecoins

The main benefit of gold as an investment is well known: as, unlike fiat currencies, gold keeps its purchasing power over time, it protects its owner from currency debasement.

On top of that, gold is highly liquid, actually, it's the most liquid asset on the planet: gold gets accepted everywhere in the world as money, i.e. as a means of payment. Its value is recognized virtually by everyone.

But gold doesn’t equal to gold: there are gold bars and coins, which can be kept at home; there is gold that can be deposited in some vaults by third parties; there are gold certificated, shares of gold ETFs, gold miners stocks, etc.

Investing in gold requires answering some basic questions:

1. Where are we going to store it? Is there a secure place in our home? Or should we let it store in a vault? But how trustworthy is the custodian?
2. What use do we have for our gold? Is it just an asset, which we use either as a short-term speculation vehicle or as a long-term investment? Or do we want to use our gold directly as money, i.e. in order to buy goods and services?
3. What about premiums and taxes?
4. Instead of gold bars and coins, should we go for gold jewelry?
5. Whom should we buy gold from? How and who should be selling our gold to? And so on…

These are simple questions, but they can require a lot of time and energy in order to be answered.

Traditionally, there were three vehicles allowing investing in gold:

1. Coins and bars, either stored at home or in some vault.
2. Shares of gold mining companies.
3. Gold derivatives: basically these are debt securities, whose value is pegged, to a varying degree, to the price of gold. The most commonly used gold derivatives are gold futures, the share of ETFs (Exchange Traded Funds) or ETCs (Exchange Traded Commodities), and options.

Recently, with the advent of blockchain and cryptocurrencies, another gold investing vehicle was born: gold-backed cryptocurrencies, i.e. gold-backed stablecoins.

Stablecoins are cryptocurrencies specifically designed to keep their price stable. They are the solution to the main issue of traditional cryptocurrencies: that price volatility which keeps them from being deployed as currencies. Stablecoin achieves the goal of price stability through different strategies. For some of them, the strategy consists of backing each coin with a given quantity of physical gold.

Currently, the gold-backed stablecoins project with the biggest ITO and the biggest market capitalization is Kinesis.

Source: PWC.ch - Strategy & ICO STO Study

Kinesis offers two currencies: KAUs, backed by gold, and KAG, backed by silver.

Each one of Kinesis gold stablecoins is backed by 1 gram of gold. In fact, each Kinesis stablecoin represents the title of ownership of 1 gram of gold:

"Each Kinesis KAU and KAG is directly allocated with the corresponding weight of physical precious metal. This allocation is always on a 1:1 ratio. Allocated legal title remains with the holder of the Kinesis currency, ensuring that proportional ownership of the allocated gold and silver always resides with the KAU and KAG holders. The bullion behind the Kinesis digital currencies will never appear on the Kinesis balance sheet, this reduces counterparty risk when choosing to hold your bullion with Kinesis."

This exclusive title of ownership of the gold and silver represented by the Kinesis coins are the legal basis for the right of Kinesis stablecoins holders to redeem their coins and take delivery of the underlying physical precious metals.

Featured image from Wall-Street.com