Written by Zelong Wang | TongTong Bee Productions | PANews 

“Given the widespread acceptance of stablecoins as a viable proxy for the world's reserve currency, there seems to be little stopping the acceptance of the dollar-linked stable coin.  It should be a matter of time before Tether surpasses Ethereum”stated Bloomberg in a latest monthly report that offers a crypto market forecast. 

The growth of USDT is quite apparent, indeed. The market cap of USDT has been on a constant rise since March 12 when Bitcoin's price plummeted, owing to factors such as cryptocurrency traders' demand for margin trading, demand in various grey markets led by "lottery", and dollar demand in countries or regions subject to sanctions or excessive local currency volatility. However, outside of USDT, tethers pegged to other assets have received far less of the limelight. 

According to the Tether Transparency page, in addition to USDT, Tether has also issued stablecoins pegged to the euro, RMB and gold: EURT, CNHT, and XAUT respectively. 

The EURT was issued back in 2014, but its current market capitalization is less than €45 million, while the CNHT was launched in September 2019 and has a current market capitalization of about RMB 23 million. Both have very limited market capitalization, trading volume, and only few exchanges list them.

XAUT's rising market cap | Source: Coingecko 

Why was XAUT able to achieve rapid growth over a relatively short period of time? What is the user demographic and what is the current trading situation? Is XAUT going to pose a new threat to the pre-eminent stablecoin USDT? XAUT issuer, Tether, and the head of the related trading platform,  shared their insights with regards to this to PANews. 

The rapid expansion of XAUT: established in January and rising out of the economic crisis 

Tether probably did not expect it. Shortly after the release of the gold stablecoin at the end of January, the COVID-19 gradually begin to spread across the globe and the resulting economic crisis has provided an excellent basis for the rapid growth of XAUT. 

Tether & Bitfinex CTO, Paolo Ardoino, told PANews that each full XAUT token represents one troy fine ounce of gold. This means that the growth in XAUT's market capitalization is directly related to investors' demands for physical gold. 

"The major use case of XAUT is for crypto-native traders to be able to obtain around-the-clock exposure to the precious metal. They tend to be interested in both crypto and gold," FTX CEO Sam Bankman-Fried told PANews. 

Delta Ex CEO, Pankaj Balani, and Deversifi CFO, Ross Middleton, shared similar views that XAUT can provide retail and professional investors with a practical way of investing in gold. They believe XAUT 's growth is the result of investors seeking out means of risk hedging amid highly accommodative monetary policies cross global central banks led by the US Federal Reserve and the global economic recession brought by the pandemic. 

The views of the above mentioned are aligned with the shifts in the macro environment. Since March, the US Federal Reserve has announced a series of aggressive policies to pump liquidity, such as the introduction of hundreds of billions in USD worth of stimulus plans, cliff-style interest rate cuts, and unlimited purchases of corporate bonds, treasury bonds, and mortgage-backed bonds. A Chinese idiom writes, "In times of plenty, treasure jade, in times of turmoil, hide gold." Instability has caused gold prices to soar. Factset data shows that demand for gold trading products, such as SPDR Gold Shares ETF, has risen dramatically, with trading volumes exceeding $100 million per week in March, the highest in five years. 

However, XAUT, a stablecoin that was launched only at the end of January this year, has the most impressive performance. Coingecko data shows that its market cap has climbed to around $88 million in the last four months since its launch, with a 24-hour trading volume of more than $190,000. It has been listed on five exchanges - Bitfinex, FTX, BTSE, Deversifi and Delta Exchange.

SDPR Gold Share ETF Trading Status | Source: Factset 

Pegged to gold, XAUT poises itself to be the real "digital gold". Paolo told PANews that investors will not have to pay custody fees for XAUT and have the right to redeem physical gold with XAUT. A caveat here is that if you purchase an Exchange Traded Fund (ETF) or a potential commodity in conventional markets, you will not be able to do so. In addition, XAUT has a fixed trading unit that can be divided to six decimal places and exchanged 24 hours a day. These factors have undoubtedly contributed significantly to XAUT's increasing market capitalization in recent months. 

In addition to attracting traders - both retail and professional, as well as institutional investors and other consumers, the steady growth of XAUT has led trading platforms to create a broader assortment of trading products around it. 

Futures contracts account for the majority in XAUT 

Delta Ex, FTX, and Bitfinex are dominating the trading arena of XAUT by a combined trading volume of about 85 percent, according to the cryptocurrency data platform Nomics. Of them, Delta accounts for almost half of that volume, making it the dominant player.

XAUT’s main trading pairs and trading volume | Source:Nomics 

In terms of the types of products, the major trading platforms primarily offer XAUT derivatives for trading. 

Pankaj said that the main product provided by the platform is perpetual swaps on XAUT and, in view of customer demand, quarterly futures on XAUT may be made an option in the future. 

Sam Bankman-Fried told PANews that the platform currently offers long/short XAUT with 3x leverage and that it plans to launch XAUT spot margin trading. 

Bitfinex currently offers perpetual contracts and spot margin trading on XAUT. 

Brian Wong, BTSE's CPO, which recently announced its XAUT/USDT spot trading pair, told PANews that they would offer XAUT perpetual and fixed term contracts, and support matching pairs for fiat currencies, stable currencies, and even BTC. 

In addition to diversifying their product portfolios, the companies do have plans for the trading network of XAUT. Paolo has previously reported to the press that, as the compatibility of Bitfnex with the Lightning Network matures, USDT, XAUT and other stablecoins may be added into the Lightning Network in the future. 

Sam Bankman-Fried and Brian Wong both confirmed similar plans in the interviews. FTX is expected to complete the introduction of the Lightning Network within this year when XAUT 's spot trading will also be incorporated into it. BTSE has integrated Blockstream's sidechain solution Liquid and is planning to integrate the Lightning Network in 3 months. 

Will XAUT be the next USDT? 

Actually, the gold-backed stablecoin track is quite saturated. According to a report by Bitcoin.com in January of this year, more than 30 gold-backed stablecoin projects have failed in the last few years and there are currently more than 75 similar projects that exist today. Most of the stablecoins are pegged to 1 gram or 1 ounce of physical gold. In addition to Tether, major players in this track include London-based digital asset management firm Coinshares,  New York State-regulated trust and digital asset service provider Paxos, and the well-known public chain, Algorand. 

PAX Gold (PAXG), which is the stablecoin from Paxos that is backed by gold, reported numbers that were not far behind that of XAUT. According to Coingecko, PAXG's 24-hour trading volume was $581,485 at the time of publication, far outpacing XAUT's $11 million in trading volume. 

As a regulated financial institution, Paxos's gold reserve audit credibility is clearly higher than XAUT's. Time will tell whether USDT's non-sufficient reserves and popularity in the market can be replicated to the likes of XAUT. 

The success in terms of market capitalisation, trading volume, user base and abundance of trading products makes one wonder what the future holds for XAUT. Is it possible for this asset to grow and become the next USDT? 

Paolo has reservations for this and told PANews that although gold is a very common and popular asset for investors, at the same time, it has much more volatility than USDT, and setting-up a product like XAUT is also trickier than a fiat backed stable-coin. Therefore, he believes that it is difficult to see if the market capitalization of XAUT can reach the same scale as USDT. 

Pankaj held similar views, adding that USDT has become the de facto tender for cryptocurrency trading and that is also quickly becoming the default currency for margining on derivative exchanges. This makes it challenging for XAUT to achieve a market capitalization similar to that USDT even if it is linked to physical gold. 

Sam Bankman-Fried, on the other hand, expressed optimism, saying that he believes XAUT as a stablecoin anchored to gold may reach a high market capitalization of tens of billions of dollars in the future. 

The forecast for the future market capitalization of XAUT is still open to debate, nonetheless, it still faces urgent problems that need to be solved. 

There are concerns about Tether's ability to manage gold in the event of a shortage of gold inventory. According to a The Block report published in March, with the global spread of the COVID-19 pandemic, many cross-country and cross-regional transport services have been shut down. XAUT's gold reserve country, Switzerland, has even been completely blocked for some time, resulting in a shortage of Tether's "gold source". On the other hand, the supply of gold at Paxos has successfully increased by 20% over the same timeframe as the market changes. 

Tether has been able to gain a firm footing as the "crypto central bank" and "P2P electronic cash." But will it claim the title of "digital gold" too? We're going to have to see what happens.