In March 12022, the market capitalization of gold-backed tokens exceeded $1 billion for the first time.
As gold-backed tokens continue to increase in popularity, the UAE appears to be becoming a hotbed for the physical gold investment alternative.
Startups from the region and globally are setting up in the country as gold-backed tokens witness a growth surpassing that of cryptocurrencies. The market cap of gold-backed tokens has exceeded $1 billion — a far cry from $100 million in 2020.
A gold-backed cryptocurrency is a digital currency that is backed by physical gold. The currency’s value is based on the current market value of gold and can be used for transactions like any other cryptocurrency.
Bullion gold experts estimate that 20 to 40 percent of the $11 trillion global gold market passes through Dubai every year. These findings can be attributed to entities embracing gold tokenization and commodity token exchanges.
Ahmed Bin Sulayem, Chairman and CEO of Dubai’s Dubai Multi Commodities Centre (DMCC) asserts the pivotal role that Dubai plays in the global trade market due to its location and its refineries and sees
He states, “Gold plays a critical role in boosting the economies of producing countries and nations with large jewelry manufacturing sectors. Arguably the most important industrial use of gold is in the manufacture of electronics, so as technology improves, demand for gold from the tech sector is also rising rapidly. DMCC is at the center of precious metals and Blockchain technology.”
Gold token growth in UAE
Most of the entities developing gold tokens have chosen the UAE because of its positive crypto stance, its regulations, its gold hub, and the region’s affinity to Shariah compliant commodities.
Ben Sharon, the CEO of Illumishare SRG, says the UAE is the biggest blockchain hub in the world, with many top blockchain companies moving their headquarters to the country.
“We found partners that share the same beliefs as we do,” said Sharon, “We know that together we will make the world a better place where money will provide both stability and opportunities.”
The Abu Dhabi-based blockchain startup developed the SRG token based on a digital gold standard to open the crypto market to the masses. The gold that will be utilized for SRG will be held in the UAE in a bank in Abu Dhabi.
The project is supported by the Private Office of His Highness Sheikh Mohamed Bin Ahmed Bin Hamdan Al Nahyan from the Royal Family of Abu Dhabi.
While others such as Comtech, view the UAE and Dubai in particular as the center of gold trade and blockchain technology. Comtech, is digitizing gold on XDC blockchain network.
ComTech’s Global Marketing Director, Zulfiqar Naqvi, opines, “Our vision is to turn it from the City of Gold to the City of E-Gold.” There reserves are now 122 KG of gold bars in just five months. The 122 Gold bars, 1 kg each with purity of 999.9, are securely stored with Emirates Transguard.
Blockchain tokenization entity Aurus also set up in Dubai’s DMCC because Dubai is a city at the forefront of innovation, blockchain technology, adding to the scalability of their ecosystem. Aurus seeks to democratize the precious metals market using tokenization.
Mark Gesterkamp explains, “We want gold, silver and platinum to be traded by more people earning them passive rewards. At the moment we are onboarding local and region partners including crypto exchanges, bullion refineries and brokers, as well as expanding Aurus precious metal backed tokens to the global retail market.
The attraction of UAE also stems from it being at the center of a strong Islamic investment front. Australian based Marhaba DeFi Islamic compliant platform, better known as MRBH with an operational license in UAE recently launched its TijariX token commodity exchange. TijariX has already commenced with the listing of gold tokens.
Mohammed Naquib, Founder and CEO MRHB Network, explains, “The Islamic community has been using gold as a means of currency and store of value from the earliest days of Islam. Yet it was always difficult to ensure secure storage of physical gold, and liquidate it when needed. Tokenized gold solves these problems while Islamic compliant platform assures adherence to Islamic practice.”
Even entities operating gold refineries in Dubai have incorporated gold tokenization into their business model. UAE REIT Development which is currently building a gold refinery to be launched in 2023 will offer tokenized gold and a tokenized gold exchange.
Karen Kriska, Vice President of Customer Relations at REIT Development says, “We will digitally mint 85 percent of the value of the gold into tokens. So if someone wants to stake their gold in the form of GoldCoin, they would stake it in our Goldexchange.com. “We will never allow our liquidity to increase to a point were those staking cannot make 0.5 percent in transaction fees per month or 6 percent a year unless, of course, we increase the gold reserves.”
Why tokenize Gold
Every entity that has chosen to tokenize gold has attributed their interest to different factors. Some believe that it is easier to convince people to buy tokenized gold rather than crypto, while others see gold as an already well accepted investment commodity in need of a more open and accessible marketplace.
Ben Sharon, CEO of IllumiShare explains that only 4.2 percent of the world population has adopted crypto because they are unable to identify the real value behind crypto. Yet when it comes to gold is has always been seen as a reliable asset in terms of store of value
By combining gold with technology and cash, IllumiShare is creating an additional hedge, defining a new crypto category and redefining money in the process. Sharon explains, “This is the reason we call SRG a Trust token.”
Comteq’s Naqvi sees gold as an investment product that is easier to understand and standardize. He says, “Gold has been used as an investment product for centuries as well as being a product close to people.” Comteq built their gold token with two aspects in mind speed, and security which is attractive to investors.
Gesterkamp, from Aurus believes that tokenization of gold makes a more inclusive and efficient precious metals market attracting younger demographics while offering easy accumulation, wider payments and ability to be utilized in DeFi and GameFi applications. Gesterkamp adds, “The increased transaction from tokenized gold implies more fees collected and as such more yield generated to ecosystem partners.”
He adds, “We also believe there is a chance that precious metals will be used to back up CBDCs (Central Bank Digital Currencies) besides a basket of currencies.”
Islamic compliant tokenized precious metal exchange TejariX believes tokenized gold will attract low risk crypto investors as well as long standing investors in traditional gold. Naquib also believes it will make gold trading accessible to the masses and is a better alternative to dollar backed stablecoins. He states, “Using TejariX platform we plan to offer Gold & Silver Standard (GSS) bullion tokens to investors around the world at 0.03% transaction fee. Each token is worth 1 gram of precious metal, and investors can buy in increments of 1/18.”
Bin Sulayam emphasizes that the tokenization of gold may increase given that gold has always been a favorite of investors and has better performed during periods of higher inflation and economic crisis. He asserts, “Tokenized gold combines the benefits of cryptocurrencies with the underlying value of the precious metal. Tokenizing precious metals allows greater democratization of the asset class through easier access, increased liquidity, faster settlement, lower cost, and in some cases, enhanced risk management.”
The Future of Gold tokens
The Future of gold backed tokens looks bright globally opens up an opportunity for the UAE to play a pivotal role. With the World Gold council plan to make gold more liquid, starting with $500 billion in gold bars in UK utilizing blockchain technology for tracking and developing gold tokens, the tokenization of precious metals is just starting.
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