Old money, new wallet
SEBA Bank is launching a digital token that allows investors to take ownership of physical gold stored in Swiss vaults – all through the Ethereum blockchain.
The Swiss bank’s new product exists as an ERC-20 token, meaning it’s custodied and traded on the world’s second largest blockchain. This differs from traditional digital gold products which are not stored on a blockchain and therefore merely serve as IOUs from an issuer.
Blockchains like Ethereum unlock a higher degree of investment security as they don’t require a trusted third party to authenticate ownership of digital assets.
Instead, they use a decentralized ledger that’s shared by everyone in the network and that keeps a single, incontrovertible record of all transactions. This is then enriched by Ethereum’s multi-party smart contracts – an additional layer of functionality that’s able, for example, to verify the serial numbers of physical gold bars that have been allocated to specific digital holdings.
Guido Buehler, SEBA Bank’s chief executive, described the new gold token as a “landmark development” for the precious metals industry – not because it’s the first such product on the market, but because of SEBA Bank’s track record for institutional-grade regulatory compliance.
“As issuance and custody of the token is managed by a Swiss bank with a banking and securities dealer license, the token platform can be trusted by institutional investors to offer a secure and regulated platform for investment,” he emphasized. “In addition, the custody of the physical gold is with regulated Swiss firms, ensuring that asset security is held paramount for both the digital and physical nature of the product.”
Token holders can redeem their physical gold on-demand at any time from SEBA Bank’s partner refineries, without incurring the transport and storage fees that are levied by traditional digital gold platforms such as BullionVault. Each token represents 1g ($57) of the metal and is divisible to 4 decimal places.
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The token can also be used as a “fully compliant stablecoin” in digital asset marketplaces, mirroring the role of fiat stablecoins Tether (USDT) and USDC.
When selling digital assets such as bitcoin, many cryptocurrency users choose to hold the proceeds in stablecoin balances that are pegged to a fiat currency – as opposed to holding the actual fiat currency itself – because these blockchain-based proxies are easier to trade, self-custody and lend out for interest. By adding a gold stablecoin to their portfolios, users can replace some of their exposure to inflation and exchange-rate volatility with exposure to commodity prices.
SEBA Bank isn’t the first company to recognize demand for this kind of hedge. New York-based stablecoin giant Paxos launched the PAX Gold (PAXG) token in 2019, pegging its value to one troy ounce of gold stored at Brink’s vaults in London.
PAXG is traded on market-leading exchanges Binance, Kraken and FTX. It can also be used to earn interest on centralized finance platforms Nexo, Celsius and Blockfi.
It’s not clear whether SEBA Bank will give customers the chance to earn a yield from its gold token. However, the company recently launched staking and earning services for several other digital assets, including Polkadot (DOT), Tezos (XTZ) and Cardano (ADA).
“Investors are looking for exposure to a broad range of assets, including stablecoins, crypto yield products and tokenized assets,” Buehler said. “SEBA Bank is catering to this demand and opening access to the gold markets for investors in the form of a regulated, cost-effective and future-proof digital token.
“Further token services will be rolled out on an ongoing basis over the coming months.”
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Author: Martin Leo Rivers, Contributor