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Tether Unveils Gold-Backed “Alloy”: What You Need to Know

Tether has unveiled a new “tethered asset” product called Alloy.

Alloy intends to offer price stability using users’ assets.

aUSD₮ is the first Alloy token. It tracks the value of the U.S. dollar and is backed by users’ Tether Gold (XAU₮).

Tether, primarily known as a stablecoin provider, has established itself as a cornerstone of the cryptocurrency market with its USD₮ stablecoin. Deployed on multiple blockchain networks including Ethereum, Solana, and TON, USD₮ plays a crucial role in bridging the gap between digital assets and the U.S. dollar.

The company’s product lineup includes stablecoins pegged to other fiat currencies such as the euro and yuan, as well as Tether Gold (XAU₮,) which is touted as a digital representation of gold. However, Tether has unveiled a new category of digital assets called “tethered assets,” which track the price of a specific reference asset, such as the U.S. dollar, but are backed by users’ assets in a collateralization process. 

How Tether’s aUSD₮ Token Works

Tethered assets are an innovative category introduced by Tether, with the aUSD₮ token tracking the value of the U.S. dollar while being backed by users’ Tether Gold tokens. This unique structure aims to combine the stability of the dollar with the intrinsic value of gold, creating a hybrid asset that leverages the strengths of both.

https://twitter.com/Alloy_tether/status/1802676443781923289

The smart contract continuously recalculates the CMP as the collateral’s value fluctuates. This real-time adjustment enables users to add new collateral and create more Tethered Assets as needed. 

However, if the value of gold drops below a set level (less than 75% of the collateral value), the deposited assets are liquidated. In such cases, “specialized actors” can purchase the collateralized Tether Gold assets at a small discount, ensuring the overall stability of the Alloy ecosystem by keeping aUSD₮ within specific parameters.

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Once minted, Alloy tokens become available in the user’s associated wallet, ready for a variety of applications such as spending, saving, or perhaps further investment once the Alloy ecosystem expands.

What Are the Differences Between aUSD₮ over XAU₮?

While Alloy (aUSD₮) and Tether Gold (XAU₮) both offer gold exposure, choosing one over the other depends on an individual’s specific financial needs and investment strategy. The differences are as follows:

Underlying asset: aUSD₮ is designed to track the value of one US dollar. XAU₮ represents ownership of one troy fine ounce of physical gold.

Collateralization: aUSD₮ is over-collateralized by Tether Gold (XAU₮). XAU₮ is directly backed by physical gold stored in a Swiss vault.

Purpose: aUSD₮ aims to provide a stable, dollar-pegged asset while allowing users to maintain exposure to gold. XAU₮ is designed to provide direct exposure to physical gold in a digital token form.

Creation process: aUSD₮ can be created by users depositing XAU₮ as collateral. XAU₮ is issued by Tether Gold when users purchase tokens backed by physical gold.

Price stability mechanism: aUSD₮ uses over-collateralization and secondary market liquidity pools to maintain its peg to the U.S. dollar. XAU₮’s value fluctuates with the price of physical gold.

Redemption: aUSD₮’s redemption process is the return of XAU₮ tokens. XAU₮ can be redeemed for physical gold, subject to minimum requirements and fees.

Final Thoughts on aUSD₮

Tether’s aUSD₮ token offers a new approach to price stability by collateralizing users’ assets. However, Adam Cochran, a partner at Cinneamhain Ventures, highlighted a distinct disadvantage of aUSD₮ in the onboarding process. Cochran stated that a user’s wallet is required to be whitelisted before being allowed to mint aUSD₮. 

Whitelisting a wallet involves submitting Know Your Customer (KYC) information, including proof of address and photo ID, and paying a $150 registration fee, making aUSD₮ unappealing to privacy-minded individuals.

The issue is compounded by the fact that Tether Gold (XAU₮) is readily available for purchase on decentralized exchanges like Uniswap, which operate without restrictions or personal information requirements.

Looking ahead, Cochran speculated that aUSD₮ may be just the first of many tokens under the “Alloy” banner, all employing the same user asset collateralizing process. Cochran further suggested that Tether would roll out Alloy tokens backed by yield-bearing DeFi assets, instead of Tether Gold, which would offer greater integration with the DeFi landscape.

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