By Chee Jo-Ey
THE novel coronavirus epidemic has sparked concern among investors and prompted them to turn to safe-haven assets, specifically gold. But what about tokenised gold?
Digix Global COO and co-founder Shaun Djie believe that purchasing gold is a smart investment choice for those seeking to protect themselves from an economic downturn in 2020 and beyond. Tokenised gold is where the asset is converted into a token that can be moved, stored, or recorded on a blockchain.
“Against a global backdrop of deteriorating trade relations between the United States and China, as well as Brexit, and the ongoing virus outbreak, the United Nations has estimated that there may be a global recession this year. This has caused panic among investors across the globe, prompting them to search for asset classes uncorrelated with traditional markets,” he said.
Gold stands out as an obvious choice. Its price jumped 20% in 2019 as a result of economic and geopolitical uncertainty leading investors to diversify their portfolios, according to Djie. At a time when traditional financial markets are volatile, the performance of gold attests to its versatility and its status as a safe-haven asset class.
Digix is the world’s first smart-asset company using blockchain that accounts for the authentication and provenance of 99.99% investment-grade gold bullion.
Digix’s native token, DGX, is the first gold-backed stablecoin on the Ethereum network – with each DGX token representing 1 gram of physical gold, approved by the London Bullion Market Association.
DGX tokens are available for purchase online – facilitating access for everyone to purchase gold bullion in increments, simplifying and democratising the process of investing in traditional gold markets.
Institutional and traditional investors also benefit through the ease of purchase as they do not have to worry about the custodianship and safety of their holdings, as all gold is custodied in secure, accredited precious metal vaults in Singapore and Canada, as well as being registered on the blockchain.
The transparency, security, traceability of the blockchain ensures that DGX tokens can be transacted and transferred with full visibility and auditability. Not only does the immutable ledger heighten security, the smart contract platform eliminates possible human error and risk of fraud that would otherwise be present in the supply chain of gold.
“We foresee that demand for gold will continue to rise throughout the year, and a much higher proportion of this demand will come from mainstream consumers than ever before. Mainstream trust in banks and traditional markets remains low since the financial crash of 2008 – and recent economic and political uncertainties are pushing investors to purchase this recession-proof metal to protect their wealth from volatile markets,” Djie opined.
Although more mainstream consumers are eager to invest in gold, there are barriers preventing them from entering the gold market. Traditionally, gold has been a negative-yielding instrument where investors have to pay to store, insure, and secure the asset – meaning that purchasing and holding gold has historically been the exclusive domain of traditional financial institutions and high-net-worth-individuals who can afford to pay for custodianship. In addition, owning gold physically has traditionally taken place with an intermediary, like a bullion bank or paper form.
“As the demand for gold continues to rise, financial innovations, mass digitisation and the introduction of asset-backed digital currencies will lead the way in democratising access to the asset – presenting financial institutions, wealth managers, and mainstream consumers with new, easy ways to purchase and own gold,” Djie said.
“This can be done through tokenised gold – which assigns ownership in the form of a digital token and represents gold bullion. Tokenised gold presents greater convenience, utility and liquidity to gold holders without the burdens of custodianship, storage and insurance.
“Tokenised gold will democratise the entire precious metal market. The market will no longer be the sole privilege of professional investors and large financial institutions, but available to everyone who wants to unlock the benefits of one of the most well-regarded asset classes available and protect their wealth from turbulent times.
“In addition to better accessibility, the decentralised and immutable nature of blockchain technology in tokenised gold allows for increased visibility, transparency and security. With the increasing number of hacks – trust, security, and data management remain a huge concern as there is a chance that sensitive data stored in centralised servers may be altered, misused, or stolen by malicious parties.
“However, tokenised gold guarantees that asset holders can maintain full visibility over their assets, transaction history, and even track inventory records while this data remains unalterable and tamper-proof through blockchain technology,” Djie said. – Feb 12, 2020
