It seems like volatility and cryptocurrencies go hand in hand lately.
Though, the decentralized nature of altcoins is very attractive, it does bring a certain amount of instability with it as baggage.
Traditional investors get spooked easily, which keeps many from entering the world of cryptocurrencies.
DigixDAO is making an attempt to solve the volatility issue of cryptocurrencies by using the Ethereum blockchain to create smart contracts for gold certificates.
Having a token tied to a stable asset as a way to store value will hopefully create a system that sees less fluctuations in the market. This could very well be an attractive platform for investors unwilling to brave the Wild West of crypto trading.
What is DigixDAO?
DigixDAO is a Distributed Autonomous Organization (DAO) located on the Ethereum blockchain. A DAO is simply a company that operates through rules encoded in smart contracts. A decentralized corporation, basically where the financial ledgers are tracked and time stamped on the blockchain.
DigixDAO works on a Proof of Asset protocol, so the tokens are backed by a physical asset.
There are two tokens issued by DigixDAO. The DGX and DGD.
Using an ERC-20 token, a user can buy a DGX coin which equals 1 gram of gold. Once a user has purchased the token a gram of gold is allocated to them on the blockchain in a smart contract. The DGX is a token to perform transactions, transactions as the aforementioned
The gold is bullion from LBMA refineries with accompanying Assay Certificates from refiners ranging from Valcambi, PAMP Suisse, Nadir Bullion
It’s not exactly an exchange then, as it is decentralized and there is no third party requiring any trust. Sort of.
Since gold is a physical asset and has to be stored, DigixDAO has storehouses where the gold will physically be located. That requires trust. You don’t have to trust the ledger on the blockchain, but you do have to trust that the gold is where it says it is and that there is enough to cover the tokens that have been bought.
DigixDAO employs Inspectorate Bureau Veritas to run quarterly audits of the gold in their storehouses. Established in 1828, they have been a trusted auditor for a long time. So, if you need to trust a third party, then one with a long history and track record is a good start.
DGD, then, is the token distributed to investors who aren’t looking to buy gold. The DGD token acts the same way other crypto coins are used. DGD token holders will receive DGX tokens gained through fees collected on the platform. The more users and transactions performed on the blockchain the higher the value of the DGD.
It seems to go against the cypherpunk ethos to tie a cryptocurrency to an asset like gold. Going against the trustless formula many tokens require is a calculated move by DigixDAO to offer a secure place to store your funds.
What is the benefit of using DGX to buy gold?
Let’s suppose that you have a crystal ball and can predict a drop or dip in the crypto markets before they happen. Usually when a drop happens, it affects coins across the board in the same way. Gold, however is not so affected.
So, if you want to hold your funds securely without cashing them out, you wouldn’t want to buy up other tokens that will drop as well. Buying gold shares, then keeps your funds secure with a commodity that won’t fluctuate so much during a bear market.
You then can ride out the volatile market until you feel like you are ready to buy back in. All without ever divesting and paying taxes on your gains while you’re waiting it out.
This has obvious benefits for both the die hard crypto traders that want a hedge on their investments and for the traditional investors that are not used to the new world financial order being ushered in by the rise of altcoins.
Relative to other cryptocurrencies, DigixDAO is moving rather slowly. They have been around longer than most altcoins, but still have a ways to go before they are a fully fleshed out platform. This isn’t a bad thing. Though things change quickly in crypto markets, DigixDAO is not likely to be left behind. Though the Gold Standard was abandoned long ago by fiat currency, it may be the ticket to entry into the crypto market many have been looking for thanks to DigixDAO.