Better Stablecoin Buy: PAX Gold vs. Tether Gold

Stablecoins might not seem like an investment opportunity at first glance. U.S. dollar stablecoins are the most common — Tether and USDC alone account for about $263 billion of the $317 billion stablecoin market. Since these are designed to maintain a price of $1, they work better for digital payments than as investments

However, there are other types of stablecoins available, including commodity-backed stablecoins. Two of the largest are PAX Gold (PAXG 1.39%) and Tether Gold (XAUT 1.65%). As you probably guessed from the names, these are gold stablecoins, where physical gold backs each crypto token.

Since PAX Gold and Tether Gold follow the price of gold, they’ve performed well even as the rest of the crypto market has declined. If you’re looking for a convenient way to invest in gold, here’s a comparison of these two stablecoins.

How PAX Gold and Tether Gold work

For the most part, PAX Gold and Tether Gold work the same way. A private company — the Paxos Trust Company for PAX Gold and Tether Limited (technically a subsidiary, TG Commodities Limited) for Tether Gold — issues crypto tokens and backs each token with one troy ounce of gold. Each company handles gold storage and provides ownership rights for token holders, including a unique serial number for the gold associated with each token.

Token holders can redeem their tokens for physical gold. Although this takes away from the convenience of investing in gold stablecoins, it’s nice to have the option.

Both stablecoins aim to follow the spot price of gold, minus fees. Neither issuer charges gold storage fees, but they do charge transaction fees. Paxos charges a fee when you buy or sell PAX Gold, with the fee amount depending on the order size. Tether Limited charges a one-time 0.25% fee when you purchase or redeem Tether Gold, although redemptions can include other fees.

So, which gets closer to the price of gold? At the time I’m writing this (on Dec. 27), gold costs $4,534 an ounce. PAX Gold costs $4,560, and Tether Gold costs $4,543 — but there are other factors to consider aside from price.

Key differences

The safety of a stablecoin primarily depends on its issuer and how the stablecoin maintains its peg to an asset. Paxos and Tether Limited use the same method of backing their tokens with gold reserves, but there’s an argument to be made that Paxos is more trustworthy.

Paxos is a U.S.-licensed financial company that operates under the New York State Department of Financial Services (NYDFS). Tether Limited isn’t licensed in the U.S., and it was fined $41 million by the Commodity Futures Trading Commission in 2021 for misrepresenting reserves related to its Tether stablecoin.

Both companies publish regular reserve reports with attestations from independent accounting firms. Paxos does so on a monthly basis, while Tether Limited publishes quarterly reports.

In all likelihood, you’re safe with either one. But if I had to choose, I’d pick PAX Gold as the safer option, based on the fact that it operates in the U.S. and hasn’t had Tether’s reputational concerns.

Should you buy PAX Gold or Tether Gold?

PAX Gold and Tether Gold are similar enough that choosing between them is a near coin-flip decision. Tether Gold is often available at a slightly lower cost, but PAX Gold may be a slightly more secure option.

There’s one more important factor to consider: availability. PAX Gold is listed on multiple U.S. crypto exchanges, including Coinbase, Gemini, and Kraken. Tether Gold is more difficult to purchase in the U.S., as Kraken is the only major exchange that currently offers it.

Depending on your preferred crypto exchange, you may find that PAX Gold is easier to purchase. Overall, I’d consider PAX Gold the slightly better stablecoin buy based on that convenience and the security it offers.