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Stablecoin Issuer Tether Announces Launch of Alloy, a New Digital Asset Backed by Physical Gold

This move highlights the growing diversity and innovation within the stablecoin market.

Photo by Zlaťá / Unsplash

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Tether, the company behind the world's leading stablecoin USDT, is making a splash with the launch of a new digital asset called Alloy by Tether (XAU₮).

Unlike USDT, which is pegged to the US dollar, Alloy by Tether is backed by physical gold stored in Switzerland.

According to an announcement on Monday, Tether will create aUSD₮ tokens by depositing Tether Gold (XAU₮) as collateral. aUSD₮ is a digital currency designed to track the value of 1 US dollar. This means that the value of aUSD₮ will fluctuate in line with the price of gold.

 “While the stabilization mechanism is different compared to traditional options like USD₮, this innovative solution marks an exciting milestone, and we eagerly anticipate how it will interact with the rest of the market. Moreover, we plan to make this innovative technology available in our upcoming digital asset tokenization platform as well,” Paolo Ardoino, CEO of Tether, said.

 Moon Gold NA, S.A. de C.V., and Moon Gold El Salvador, S.A. de C.V., both authorized by the CNAD in El Salvador, will handle the issuance and management of Alloy by Tether, catering to different customer segments and regulatory requirements, the announcement said.

Stablecoins: A Booming Industry

Stablecoins are digital tokens pegged to the value of a real-world asset, most commonly fiat currencies like the US dollar. They have become a crucial part of the cryptocurrency ecosystem, facilitating transactions and offering a stable alternative to volatile cryptocurrencies like Bitcoin.

The stablecoin market is massive, currently boasting over $160 billion in circulation. This represents a tiny fraction (around 0.8%) of all US dollars in circulation, but the growth trajectory is undeniable. Stablecoin transactions now handle more than $3 trillion in monthly volume, dwarfing even giants like Visa's $1.2 trillion monthly processing.

Why are Stablecoins So Popular?

Several factors contribute to the rise of stablecoins:

  • Accessibility: Stablecoins provide a gateway to US dollars (or other fiat currencies) for people worldwide, especially those in regions with unstable local currencies.
  • Speed and efficiency: Compared to traditional money transfers, stablecoins offer faster, cheaper, and more secure transactions.
  • Yield opportunities: The ability to earn interest on stablecoin holdings attracts investors seeking returns in the digital asset space.

Tether's Gold-Backed Gamble

Tether's launch of XAU₮ signifies a potential new direction for stablecoins. By backing a digital asset with a traditional safe-haven asset like gold, Tether is offering investors exposure to gold's price stability within the cryptocurrency ecosystem.

Additionally, Tether plans to create aUSD₮ tokens using XAU₮ as collateral, essentially creating a stablecoin indirectly pegged to the price of gold.