CanaGold

continuing this exciting series on crypto and pegged tokens in Canada. in my last post I sketched an outline for CanaCoin, a Canadian dollar (CDN) crypto pegged token.

it occurred to me since thinking about currencies and pegged tokens. how about the "ultimate currency", the one still standing after all these centuries, gold. unlike CDN, which may be more niche, gold or a "gold crypto coin" is likely more developed in the crypto thought space. gold, like US money (USD), and crude oil is of course global. everyone knows about it and has to care about it. search around and some such products may well already exist.

gold is the gold standard, heh. now gold is a bit different than USD or CDN. it is typically valued not in its own unit. so 1 USD = 1 USD, and 1 CDN = 1 CDN (kind of a tautology, but I hope you get the point). gold is generally expressed as its value in USD, as opposed to its value in, well gold. 

then the Canadian or US dollar is backed by gold. again this is a bit of the specialness, the uniqueness, the mystique about gold. typically people don't talk about using gold to buy something, or trading say land or valuable hockey cards for gold.

so CanaGold then is a pegged crypto token valued at 1 oz of gold.

how to get the gold to back CanaGold

unlike CanaCoin, users probably wouldn't be expected to send gold, or acceptable gold certificates. with CanaCoin you send 50 CDN and get 50 CanaCoin tokens. CanaGold I'd think the user would have to send enough CDN to purchase on market an ounce of gold to back the minting of a CanaGold coin. see the CanaCoin post for kyc, auditing and all those fun administrative details.

at TD Wealth Precious Metals I saw a link go by where they can get gold for clients. They offer both certificates, as well as secure storage, and the real physical bullion. CanaGold would want the certificates. Setting up and operating a secure facility to manage physical gold like Barclays or TD Wealth would be cost prohibitive. CanaGold is looking like a premium high end service but managing physical gold would be too hard and costly. 

I'm not personally a client of TD Wealth at this time. Just showing it as an example where it should be possible to acquire gold. A CanaGold authority would have to get a real gold provider for bona fide gold certificates. One option I guess would be for the client provides the gold certificate for the CanaGold, instead of CDN to purchase gold. That sounds hard and I'm not sure CanaGold authority would want that, to be receiving gold certs.

the cashout issue

So redemption is a bit trickier with gold. A $1 Canadian Tire money issued in 1995 is still worth $1 today at Canadian Tire. Same as a Canadian $1 loonie minted in 1999 still buys $1 of candy at a corner store today. Maybe not as much as you could have purchased in 1999, but still $1 worth. 

The token redemption would be onto gold, as that is what the token is pegged to. One option would be to send the gold certificate as the redemption. Client now owns gold. Another option would be the gold certificate is sold to some kind of gold market provider, the same one the gold was purchased from in the first place, and proceeds sent to the redemption client. 

In a way sell at market makes sense as it as CDN into gold at the creation of the CanaCoin, then gold to CDN on the way out. What must be avoided is CanaGold assuming any kind of risk or exposure to changes in the price of 1 oz of gold in CDN. All risk for the price of gold in CDN going up or down has to be assumed by the client for better or for worse. 

So if client spends $1000 CDN for 1 CanaGold token, price of gold declines to $900. at cashout, client loses $100. So the peg is to gold, not to CDN. I guess if the client wants a CDN peg then use CanaCoin. For a USD pegged token use some USD product. So just saying, it's a bit different than a peg to currency.

again like CanaCoin, the product CanaGold does not exist at the time of this writing. this crypto series has been an interesting exercise for me to organize some ideas around it. I've covered a few concepts and some of the challenges around bridging between the digital crypto world and the more conventional real world wealth.