XAUt market capitalization is rapidly rising, can it become the next USDt?

Recently, Bloomberg pointed out in a monthly cryptocurrency market analysis report that the growth momentum of USDt is strong, and surpassing Ethereum seems to be just a matter of time. Indeed, various factors have contributed to the continuous increase in USDt market capitalization, including the increased demand for margin trading from traders after March 12, the demand from certain gray industries, and the demand for US dollars from some countries or regions.

However, while USDt is receiving a lot of attention, other assets issued by Tether that are pegged to stablecoins have rarely entered the public eye. According to Tether's public data, in addition to USDt, the company has also issued stablecoins pegged to the euro, Chinese yuan, and gold, namely EURt, CNHt, and XAUt.

Among them, EURt was launched as early as 2014, but its current market capitalization is only about 45 million euros. CNHt was issued in September 2019, and its current market capitalization is about 23 million RMB. The market capitalization, trading volume, and number of exchanges for these two stablecoins are relatively limited.

In contrast, XAUt, which was launched at the end of January this year, has performed remarkably well. According to data platforms, in just over 4 months since its launch, XAUt's market capitalization has reached approximately 8.6 million USD, with a 24-hour trading volume exceeding 110,000 USD, and it is currently listed on 5 trading platforms.

What are the reasons for XAUt's rapid growth in a short period? Who is its user base? How is the current trading situation? With USDt seemingly firmly seated on the throne of stablecoins, will XAUt pose a new threat to it? In response, Tether, the issuer of XAUt, and the heads of related trading platforms have made statements.

XAUt Rapid Expansion: Born in January, Grown During Economic Crisis

Tether may not have anticipated that shortly after issuing the gold stablecoin at the end of January, the COVID-19 pandemic would begin to spread globally, creating a favorable opportunity for the rapid growth of XAUt's market capitalization due to the resulting economic crisis.

The CEO of a trading platform stated that users interested in XAUt are mainly those traders who wish to conveniently gain exposure to gold and have investment interests in both cryptocurrencies and gold.

Other trading platform executives share similar views, believing that XAUt provides retail and professional investors with a convenient way to invest in gold. The growth of XAUt is related to the aggressive monetary policies of global central banks and the economic recession triggered by the COVID-19 pandemic, prompting investors to seek to hedge risks through XAUt.

These views align with changes in the macro environment. Since March, the Federal Reserve has introduced a series of aggressive policies, such as launching large-scale stimulus programs, significantly cutting interest rates, and purchasing bonds without restrictions. Economic uncertainty has driven gold prices up, and data shows that demand for products like gold ETFs has significantly increased.

As a gold-backed stablecoin, XAUt seems to have become the true "digital gold". Tether states that investors do not need to pay custody fees for XAUt and can redeem physical gold with XAUt. Additionally, XAUt can be divided up to six decimal places and is traded around the clock. These factors have undoubtedly driven the rapid growth of XAUt's market capitalization in recent months.

The good development trend of XAUt has not only attracted various investors but also prompted trading platforms to build a richer variety of trading products around it.

The trading platform's main push for XAUt derivatives

According to data from the platform, three major trading platforms account for about 85% of the trading volume of XAUt, with one platform's trading volume accounting for nearly half, holding an absolute dominant position.

From the product form perspective, most trading platforms primarily offer derivatives trading of XAUt.

A trading platform stated that it currently mainly offers perpetual contracts for XAUt and may launch quarterly futures in the future. Another platform provides trading options for XAUt with 3x leverage for long/short positions and plans to launch spot margin trading for XAUt.

The platform also offers perpetual contracts and spot margin trading for XAUt. Recently launched XAUt/USDt spot trading pairs on the platform also plan to introduce perpetual contracts and term contracts for XAUt, supporting trading pairs with fiat currencies, stablecoins, and even Bitcoin.

In addition to the diversified trading varieties, various platforms have also planned the trading infrastructure for XAUt. Some platforms have confirmed that with the improvement in compatibility with the Lightning Network, they may introduce stablecoins like XAUt into the Lightning Network in the future. Other platforms have also expressed similar plans, expecting to complete the integration of the Lightning Network within this year or after a quarter.

XAUt is unlikely to become the next USDt

In fact, the stablecoin sector that is pegged to gold has become quite crowded. Reports indicate that over 30 similar projects have failed in the past few years, and there are still 75 related projects in operation. In addition to Tether, several well-known institutions and public chains are also involved in this field.

The data of the gold stablecoin issued by a licensed digital asset service provider is also impressive compared to XAUt. As of the time of writing, the 24-hour trading volume of this stablecoin is close to USD 480,000, far exceeding XAUt's over USD 110,000.

In addition, as a compliant licensed institution, the credibility of the gold reserve audit of this service provider is clearly higher than that of XAUt. Whether the situation of USDt, which has non-fully backed reserves yet thrives in the market, can be replicated in XAUt remains to be seen with time.

Although XAUt performs well in terms of market capitalization, trading volume, user base, and variety of trading products, it remains to be seen whether it can grow to become the next USDt.

In this regard, the person in charge of Tether holds a negative attitude. He stated that although the gold behind XAUt is a common and popular investment target, its volatility is much higher than that of USDt. Furthermore, issuing gold-backed stablecoins is more complex than issuing fiat-backed stablecoins, so the market capitalization of XAUt is difficult to reach the scale of USDt.

The CEO of another trading platform holds a similar view. He believes that USDt has become the foundational medium for cryptocurrency trading and is becoming the default token for margin or derivative trading, which makes it difficult for XAUt, even when pegged to physical gold, to reach a market capitalization comparable to that of USDt.

However, some platform CEOs hold a relatively optimistic view, believing that gold-backed stablecoins represented by XAUt may reach a market capitalization of hundreds of billions of dollars in the future.

The future market capitalization space of XAUt remains to be seen, but it still faces some urgent issues that need to be resolved during its development. For example, in the case of a shortage of gold supply, Tether's ability to source gold is in doubt. Reports indicate that the COVID-19 pandemic has hindered international transport, and at one point, the countries supporting XAUt's gold reserves were completely locked down, leading Tether to face a "gold source" shortage at that time. In contrast, other institutions successfully increased their gold supply by 20% during the same period.

After the basic establishment of the concepts of "central bank digital currency" and "peer-to-peer electronic cash", can Tether gain the reputation of "digital gold"? We shall see.