The Return to Gold Standard - Rethinking the True Meaning of Stablecoins

Author: William Campbell, USDKG Consulting Director, CoinTelegraph; Compiled by: Deng Tong, Jinse Finance

Stablecoins are hailed as a breakthrough in the cryptocurrency space, combining the lightning-fast, borderless nature of digital assets with the stability of traditional currencies. They achieve this by pegging their value to reserves such as fiat currencies or commodities. Stablecoins are designed to maintain a fixed exchange rate with the underlying asset, typically on a one-to-one basis.

What does “stability” mean? Essentially, stability requires three pillars:

• Reliable collateral: Tangible assets that support tokens.
• Transparency: Anyone can independently verify the ability of the reserves.
• Consistent Peg Maintenance: Strong safeguards to prevent decoupling, which is when the market value of a stablecoin deviates from its fixed ratio with the underlying asset.

Without these fundamental elements, stablecoins are merely speculative tools disguised as safe havens. In 2022 alone, when so-called “safe” stablecoins lost their peg, billions of dollars in value evaporated, meaning their market prices deviated significantly from the expected 1:1 ratio with the underlying assets — this raises a disturbing question: Can digital assets truly be stable without verifiable, independently audited backing?

Need for a Reliable Asset-backed Model

Recent market events have exposed serious fundamental weaknesses in privately issued stablecoins. These tokens often rely on opaque mechanisms, insufficient auditing practices, or collateral that investors cannot independently verify.

These flaws have repeatedly led to sudden “decoupling” events, such as the collapse of the TITAN token in Iron Finance in 2021. The over-leveraged algorithmic system crashed to near zero, wiping out billions of dollars in liquidity.

The collapse of TerraUSD in 2022 also highlighted similar vulnerabilities, as the value of the stablecoin quickly disintegrated, intensifying concerns over algorithmic models lacking transparent reserves.

At the same time, some collateralized and so-called “fully audited” stablecoins are facing scrutiny due to inconsistent disclosure practices. Even well-known issuers must continuously prove that their reserves are sufficient and legitimate.

These issues mainly stem from the lack of regulation of private issuers and vague collateral management practices. Investors often have limited means to independently verify reserves, which exacerbates ongoing doubts about whether the backing of the claims is genuinely present or whether the tokens are properly collateralized.

Only models backed by tangible assets and verifiable reserve records can truly achieve the stability promised by digital assets. Through a transparent framework, we can rebuild trust and usher in a new era of reliable digital finance. These events highlight a universal truth: true stability is built through auditable oversight and verifiable reserves, not hollow branding.

Gold is an eternal anchor.

For thousands of years, gold has been the ultimate means of value storage for humanity, protecting wealth during wars, economic collapses, and pandemics. Its scarcity, intrinsic value, and universal acceptance make it a refuge when institutions are on shaky ground – a clear example being the 25% surge in gold prices during the market crash of 2020, as investors fled volatile assets.

The value of gold transcends borders and ideologies, based on tangible scarcity rather than hollow promises. For example, although the USD has lost 96.8% of its purchasing power since 1913, the purchasing power of gold has remained stable or even increased. This record makes it an ideal anchor for those seeking to maintain stability in a turbulent cryptocurrency environment.

Critics of gold may point to its storage and maintenance costs, as well as the logistical challenges of physically transporting gold bars. However, modern vault solutions and robust insurance measures largely alleviate these concerns, especially when combined with blockchain-based auditing mechanisms.

Gold-backed stablecoins leverage this eternal reliability, combining the enduring value of physical gold with the efficiency of blockchain. By linking digital tokens directly to physical gold, they sidestep the speculative risks of cryptocurrencies and the inflation traps of government-issued currencies.

Blockchain-Supported Gold Tokenization

Blockchain technology eliminates traditional barriers to gold ownership by enabling fractional digital ownership and intermediary-free global transactions.

Physical gold stored in regulated vaults is digitized into tokens, with each token representing an exact portion of the underlying asset. Each transaction is immutably recorded on a decentralized ledger, allowing investors to continuously check reserves in real-time through automated smart contracts.

The system overcomes the historical limitations of gold, including insufficient liquidity and high storage costs, while eliminating the opacity of traditional reserve management. It combines the tangible security of gold with the immutable record-keeping of blockchain, while also embedding trust directly into the architecture.

This approach creates a stablecoin model that is different from any other, where verifiable backing is the pillar of the system, not just a paper promise.

Create a Stablecoin that Truly Provides Stability

Gold-backed stablecoins combine the inherent accountability of blockchain with the stability of gold, creating a new class of digital assets resistant to volatility. This model anchors digital tokens to the intrinsic value of gold, avoiding the volatility of speculative cryptocurrencies and the inflation risks of government-issued currencies.

The result is a stablecoin designed for trust, whose stability is not guaranteed by code or institutional promises—rather, it is supported by tangible scarcity and the steadfast transparency of the blockchain.

Trust is the cornerstone

The main challenge facing stablecoins is establishing user trust. This trust cannot be built solely on the company’s reputation. It must be earned through independently verifiable collateral, real-time audits, and clear regulatory oversight.

The innovative hybrid model effectively demonstrates this approach. The government strictly regulates and audits gold reserves under the hybrid model to maintain a verifiable 1:1 backing. Private entities handle token issuance, trading, and compliance processes, carefully separating the national verification of collateral from the private management of operational functions.

This public-private partnership ensures strict oversight without the need to create a central bank digital currency. As they share responsibilities, the model establishes a system where the government guarantees authenticity and the integrity of collateral, while private enterprises are responsible for operational efficiency, ensuring a balanced, decentralized but trustworthy environment.

Towards a More Trustworthy Digital Financial Ecosystem

The true stability of digital finance does not come from marketing slogans, but from transparent mechanisms and verifiable collateral.

The future of digital finance lies in combining the revolutionary transparency of blockchain with the historically proven stability of gold, especially under government audits and private management structures. With the emergence of more asset-backed solutions, institutions, regulators, and everyday users will adopt stablecoins that transparently fulfill their stability commitments.

This evolution marks a critical shift. Investors will no longer accept vague assurances. Investors demand specific stability. Gold-backed stablecoins will combine ancient reliability with blockchain innovation, leading the next generation of digital financial tools and ensuring that stablecoins fulfill their original promise—uncompromising stability.