The stablecoin is still an evolving concept, and there have been multiple approaches to it. Dai has algorithmic methods to keep it tied to the US Dollar, while the multitude of stablecoins – USDT, PAX, GUSD, TUSD, and USDC — all simply offer a 1:1 exchange ratio. The recently-rebranded Ampleforth offers an elastic supply so that the holder always gets the same value out of their investment, while they may have a different number of tokens depending on the market value of the token.
Digix takes a different approach, tying the value of its DGX token to 1 gram of gold. A small outfit run out of Singapore, Digix Global says that it will redeem tokens for physical bars of gold that they store in their vault. Redemption must take place in person, primarily for security but also due to the high cost of internationally shipping gold safely. We spoke to Kai C. Chng, the co-founder of Digix, about how it works.
First things first, even if the exchange itself were to flounder and never take off, Digix has developed an interesting method for tracking its gold bars on the exchange. Chng told us that every bar is scrupulously scanned into the system, its receipt information stored, and it is then associated with the token issued for sale. That is, essentially when you trade or hold DGX tokens, you are actually holding certificates of ownership to gold. There is a minimum redemption requirement, but such tokens can play a key part in trader strategy nevertheless.
“We have what we call a demurrage fee, it’s almost equivalent to storage, insurance, coded in the smart contract of each bar.”
Thus, this is how the exchange makes money – by storing tokens and their associated bars with Digix, a small amount of the token is eroded to pay for the gold’s storage.
At a given time, the exchange transparently lists its wares. Users are free to inquire if they have further questions about storage and tracking. The DGX token is currently listed on a number of reputable exchanges including Ethfinex. The majority of its trades seem to happen on the decentralized markets.
At the time of the interview they only had about 1400 grams on hand, but the CEO said they would be acquiring another 5,000 units from their supplier, London Bullion Market Association. By time of writing they had acquired these and sold a number of them, their supply being just over 4,600.
For those interested in trying out Digix, there is a sale going on with the exchange. They are selling under the cost that it costs them to acquire the gold until the end of the year, in an effort to stimulate user activity. Chng explained that in a normal situation, the exchange and transaction fees eat up around .05% of the value of the gold, putting a premium on the token versus actual gold bars at spot price. But until the end of 2018, Digix will be eating these fees. “We’re sort of just absorbing the fees right now,” said Chng.
The operation may seem small when compared to exchanges that transact in digital gold like Bitcoin, but it was founded and funded with private equity and has what amounts to a sound business model, if nothing else. Chng said that three people have come to Singapore and made redemptions, one of them in the thousands of units, and he felt that at least one of these people were just testing to see if the process really worked as advertised. They were not disappointed.
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