The price of gold has increased by 85.56% in the past 12 months and is currently over $5,100 on the Comex continuous contract. So, if you bought some a year ago, you’re likely quite pleased.
However, if you’re a jewelry maker or retailer who needs to purchase gold repeatedly for manufacturing, you face a logistical challenge. You could wait until all your current inventory is sold and then use the cash to buy more gold for new products. But that takes time, and while you’re waiting, the price of gold might move against you.
Alternatively, you can do what jewelry companies typically do, which is to continuously borrow a supply of physical gold on the understanding that the amount owed back is the same quantity of gold, not its dollar value. The cost of holding this borrowed gold is the interest payments on the loan. But since the debt is in physical gold, not its fluctuating dollar value, the jeweler can reduce its exposure to negative price changes and only be exposed to the interest payments.
This, of course, presents its own logistical headache. But some crypto companies, particularly Theo, Libeara, and Falcon Finance, believe they’ve developed a solution that will make investing in gold even more appealing.
“Tokenized gold” has been around for a while. The concept is straightforward: You buy a crypto token representing a certain amount of gold; the platform from which you buy it promises to back that token with gold assets on a one-to-one basis; and now you own the crypto version of gold. (It’s similar to how a gold exchange-traded fund holds gold but offers investors shares in the fund based on each share being worth a specific amount of the underlying gold.)
Currently, the two largest tokenized gold cryptocurrencies are Tether’s XAUT (with a market cap of $2.6 billion currently) and Paxos’s PAXG ($2 billion). Together, they have a market cap of $4.6 billion.
But there’s an obvious drawback to owning tokenized gold: If the price of gold drops, the value of your token will fall by the exact same amount. Gold is technically an “idle” risk investment as it pays no interest (unlike bonds) and no dividends (unlike stocks). That’s one reason why, historically,… Tokenized gold is essentially just gold in a crypto format.
Theo, Libeara, and Falcon Finance think they have a solution for that: tokenized gold that pays a yield to investors simply for holding it. These companies promise that even if the price of gold goes down, holders of their tokens will be paid an interest-like percentage along the way.
In the case of Theo, the company recently launched a token called “thGOLD.” Each token represents a portion of the MG999 On-Chain Gold Fund, a tokenized, secured private credit fund managed by Libeara and backed by FundBridge Capital. (Libeara is backed by Standard Chartered’s VC fund.)
The underlying fund lends gold to jewelers who pay interest in return. After deducting fees, holders of thGOLD can expect to receive an annual yield of 2.3%, Theo cofounder Arijit Pingle told .
ThGOLD is tradable on decentralized finance platforms such as Hyperliquid, Uniswap, Morpho, and Pendle.
Libeara’s first borrower is Mustafa Jewellery, a Singapore-based retailer with revenues in the region of $550 million and that transacts about two tons of gold annually, Libeara CEO Aaron Gwak told .
The advantage for Mustafa is that obtaining gold financing from the crypto markets is easier than dealing with banks, which often require claims on company assets like real estate to secure loans for gold.
The interest rates are also lower for gold borrowers.
“In Korea, I was talking to some of the gold merchants who borrow gold, and [I said] we borrow gold at 2.5% [annually], and they’re like, ‘Oh, we borrow gold at 1%.’ I was like, ‘Wow! That’s great!’ But [they were paying] 1% a month,” Gwak said.
Falcon Finance has a more complex, crypto-based solution to the “idle” gold problem. It offers a “vault” where customers can deposit their XAUT gold token as collateral. Falcon then uses that collateral to take a hedged position on a decentralized finance exchange, for example, by being equally long and short in Bitcoin simultaneously, so that regardless of what happens to the price of Bitcoin, the position’s value remains constant. This position can be provided as loan liquidity on the platform to borrowers willing to pay a yield in interest.
Falcon CEO Andrei Grachev told that traders can expect a 4% yield after various fees. Falcon currently has only a few dozen customers testing the product, but Grachev hopes it will grow to $500 billion in assets under management “within a few months.”