There is a buying frenzy in the gold market that has boosted the price of the precious metal by more than 80% in the last 12 months, making it one of the best-performing assets.
However, investors are not paying attention to a hidden threat brewing beneath the surface, according to Björn Schmidtke, CEO of gold treasury firm Tether Aurelion (AURE).
The easiest way for someone to buy gold is to buy what Schmidtke calls “paper gold” or shares of a gold exchange-traded fund. When buying these types of stocks, what investors think is that they have bought the physical gold bar, when the reality is that they have bought “a small piece of paper that says, ‘I owe you gold.’ And people collectively agree that this paper has value,” he said in an interview with CoinDesk.
While this avoids the hassle of owning and storing a physical gold bar, that’s where the real problem begins, according to Schmidtke.
‘Seismic event’
Think of it this way: an investor buys the “paper gold” thinking he now owns a bar of gold. Although it is redeemable, the investor does not know which gold bar he or she owns. There is simply no proof of owning a gold bar, other than the fact that an investor bought a share of the ETF.
Schmidtke estimates that 98% of gold exposure is effectively unallocated in promissory notes, in which investors own billions of dollars in pieces of paper that must be backed by the gold they represent, but do not know which gold bars they own.
This is fine for now because the current system has worked for decades as few investors demand delivery.
But let’s say a catastrophic event occurs where the fiat currency devalues exponentially and people rush to get the physical gold they thought they bought when they bought their “paper gold.”
When such a “seismic event” occurs and the investor wants his gold bar, where is the proof that the gold bar is owned by that investor and how are those gold bars delivered to the investors?
“You simply cannot move a few billion dollars of physical gold in a single day,” he said. And if those gold bars lack proof of ownership, that creates an even bigger logistical bottleneck, which could lead to a market breakout if panic drives investors toward redeemable assets. In such a crisis, the price of real gold could skyrocket while paper gold prices would lag, leaving derivatives holders unable to reach a deal.
“The risk is real. We’ve already seen it in the silver market,” he said, pointing to past events where physical premiums rose while spot prices remained stable. “We think we will see it in the gold market as well,” if such an event occurs.
This is where onchain gold comes into play, according to Schmidtke.
Proof of ownership
Consider a theoretical real estate ownership scenario.
Let’s say a real estate developer offers a unique way for investors to purchase housing units. If they purchase 10 shares of the project, they will receive an instant promissory note promising the delivery of 10 housing units. This promoter has also promised the same to other investors. The entire process is completed with the simple purchase of shares in the project, without the need to sign a property title.
Sounds easy, right?
Now, when it comes to taking possession of the housing units, because the investors did not sign any title deeds but rather bought shares, there is no search evidence of which units they purchased, and the developers could try to deliver them randomly, creating a nightmarish bottleneck, where the units will probably be delivered to the investors, but it will take a considerable amount of time and with no guarantee of who will receive which units and when.
Schmidtke says on-chain gold ownership solves this by removing the bottleneck in the delivery of physical gold.
To redeem physical gold, investors would have to physically move it, while tokenized gold, like XAUT, decouples ownership from the physical movement of the metal.
Because each XAUT token is inextricably linked to a specific assigned gold bar held in a Swiss vault, “title” to that gold can be transferred globally in seconds on the blockchain.
It is similar to the theoretical real estate problem. If, instead of just buying shares, an investor signed a deed from the beginning, they would know exactly what units they were acquiring, and it would be easier for developers to quickly sort through those deeds and deliver those units to their rightful owners on time.
With the gold token on chain, these allocations will be searchable and redeemable. While actual physical delivery may still take time, at least investors can trust that their gold, with its title, remains secure and traceable.
A ‘durable’ property
That vision is shaping Aurelion’s strategy.
The company has reformed its treasury to maintain a blockchain-based token backed by physical gold stored in Swiss vaults.
Schmidtke argued that XAUT provides the speed of digital transactions without sacrificing physical settlement. Unlike paper gold, tokens represent allocated bullion and are fully redeemable. “How you own gold matters as much as whether you own gold,” he said.
Schmidtke sees XAUT as early in its adoption cycle, with room to scale.
Asked if Aurelion would consider selling its gold, Schmidtke said only if market conditions present a “significant and sustained discount” to the company’s underlying holdings. For now, the company is focused on long-term capitalization.
“This is not a short-term arbitrage strategy,” he said. “This is about building durable Tether Gold capital that investors can participate in over time.”
Aurelion also plans to raise more capital over the next year to expand its gold treasury.
The company, according to CoinGecko data, currently holds 33,318 XAUT tokens worth around $153 million.
