As their name suggests, commodity backed stable coins are collateralized with real world assets such as precious metals, real estate and oil.
They are preferred by investors who prefer a more reliable form of collateral, with gold and silver being the most commonly used by way of their stablecoins PAXG (Pax Gold) and SLVT (SilverTokens).
Examples:
- PAX Gold (PAXG)
- Tether Gold (XAUt)
- SilverTokens (SLVT)
These stablecoins are also less susceptible to inflation compared with fiat backed stablecoins and make a good choice for those looking for exposure to precious metals who find it difficult to get direct access. Their main drawback, however, is that they are far less liquid than other choices.
Such stablecoins make it easier to gain exposure to the support commodities. You may not be able to buy a physical gold bar or a barrel of oil but you can purchase a stablecoin which is backed by it.
Pros:
- Provide exposure to underlying assets which are normally ‘out of reach’, this breaks down the barrier and allows the spread of asset ownership to increase without needing the knowledge and network to buy the asset directly
- Compared to the majority of crypto assets, they are less volatile due to being back by real world assets (RWAs)
- Less susceptible to inflation due to these RWAs being go to options in hard economic times and the tried and true method of people storing wealth in precious metals, real estate, oil and other assets in harsh times is a trend which continues here to
Cons
- The value of the assets is susceptible due to external real world events, these are variables which cannot be accounted for until the happen (Russian/Ukraine War, Oil prices falling to historical lows) so the element of a potential black swan event increases the risk of the assets, the stablecoin itself maintains the same value but the value of the asset can fluctuate and thus change the value and worth
- At times low liquidity make may liquidating these assets harder and not having the ability to liquidate them in a timely manner may cost the owners untold amounts of worth
If you want to learn more about stablecoins you can check out our full Poundtoken stablecoin guide here guide to stablecoins.
