The gold standard in the currency circle is easy to understand

The currency gold standard is a cryptocurrency stabilization mechanism that links the price of cryptocurrency to gold to reduce volatility. The supply is regulated by issuing or repurchasing tokens, thereby stabilizing prices and enhancing trust and risk aversion. However, it requires large gold reserves, is susceptible to manipulation, and has limited liquidity. Well-known examples of crypto gold standards that have been implemented include Tether, Pax Gold, and the Perth Mint Gold Token.

What is the currency gold standard?

The gold standard is a cryptocurrency stabilization mechanism that links the price of cryptocurrency to valuable assets such as gold.

How does it work?

A typical currency gold standard system links cryptocurrency tokens to a certain amount of gold reserves. When the price of a cryptocurrency increases, the system issues more tokens to increase the supply of tokens and lower the price. When the price drops, the system buys back tokens, reducing the token supply and increasing the price.

Benefits:

• Stability: The gold standard reduces cryptocurrency volatility by tying cryptocurrency prices to the relatively stable price of gold.
• Trust: Gold, as a respected asset, can enhance trust in cryptocurrencies.
• Hedging: In times of economic uncertainty, gold is often viewed as a safe-haven asset, so the currency gold standard can provide additional stability for cryptocurrencies.

Challenges:

• Gold Reserves: Implementing the currency gold standard requires large gold reserves, which can be costly and difficult to obtain.
• Manipulation: If there is manipulation or lack of transparency in gold reserves, it may undermine the stability of the gold standard in the currency circle.
• Liquidity: Gold may be less liquid than cryptocurrencies, which may affect the responsiveness of the currency gold standard system.

Well-known examples

• Tether (USDT): The world’s largest stablecoin, pegged to the US dollar.
• Pax Gold (PAXG): An ERC-20 token linked to gold.
• Perth Mint Gold Token (PMGT): A gold-linked token issued by the Perth Mint in Australia.

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