What are gold-backed stablecoins and can they become the future of digital gold investing?

With gold prices surging amid escalating West Asia tensions, concerns over rising imports and pressure on foreign exchange reserves have intensified. Days after Narendra Modi urged citizens to avoid non-essential imports such as gold and foreign travel, the government raised customs duty on gold and silver to 15% from 6% to conserve forex for critical needs like energy and fertilisers.

India, the world’s second-largest gold consumer after China, relies heavily on imports to meet jewellery demand. Gold imports rose over 24% to a record $71.98 billion in 2025-26, although import volumes fell 4.76% to 721.03 tonnes

Amid these developments, a post by Nikhil Kamath went viral, where he pitched the idea of a gold-backed stablecoin, suggesting it could help unlock and monetise the vast stock of idle gold held by Indian households while also generating returns for investors.

Ashish Singhal, co-founder of CoinSwitch, helps decode everything you need to know about gold-backed stablecoins

What are gold-backed stablecoins, and how are they different from traditional stablecoins or digital gold products?

Traditional stablecoins like USDT or USDC are pegged 1:1 to the US dollar and function primarily as digital cash for payments and liquidity. In contrast, gold-backed stablecoins such as PAXG or XAUT represent ownership of physical gold held in audited vaults, backed by allocated or pooled bullion.

The key distinction is purpose: USD stablecoins optimize for transactional efficiency and market liquidity, while gold-backed tokens serve as a macro hedge and long-term store of value. Fiat-backed stablecoins are designed to maintain a fixed currency value, while gold-backed stablecoins move with gold prices.

Who should consider investing in gold stablecoins, and what kind of role can they play in an investment portfolio?

Gold-backed stablecoins are suited for investors who want digital exposure to gold as a long-term store of value. They can help preserve purchasing power in environments where fiat inflation or currency depreciation is a concern. They also serve as a useful portfolio diversifier, offering a non-correlated hedge against more volatile assets like equities and crypto. For more conservative investors, they can act as a lower-risk entry point into digital assets while still maintaining exposure to a real-world underlying asset like gold.

What are the key risks and factors investors should keep in mind before investing in gold stablecoins?

In today’s ecosystem, there are two key considerations. First, gold-backed tokens like PAXG and XAUT still represent a relatively small market, which can limit liquidity and depth, especially during periods of stress. Second, because gold-backed stablecoins sit at the intersection of commodities, securities, and digital assets, they are inherently exposed to evolving regulatory frameworks; any shifts in classification or compliance requirements can directly impact issuance, access, and market operations.

So for investors looking to start, it is often prudent to begin with smaller allocations, gradually building exposure as they become more comfortable with the asset structure and liquidity dynamics.