Because of its scarcity, portability, divisibility and current valuation, many people are calling bitcoin the modern “digital gold.” And like gold, bitcoin seems to be establishing itself as a popular store of value.
But now CME Group, one of the world’s largest providers of gold futures contracts, wants to bring real, physical gold to a blockchain-based asset, and it has landed a big partnership with the U.K.’s Royal Mint.
By any standard, CME Group is a juggernaut in the world of high finance. Handling approximately $1 quadrillion worth of derivatives contracts annually, it is an influential player in the global gold market. And having roots in commodity trading since 1898, it is no stranger to the challenges of an evolving marketplace. Which is why the company has now set its sights on blockchain technology.
According to a blog post by Sandra Ro, CME Group’s head of digitization, the new asset will be a token known as RMG (Royal Mint Gold), and backed by physical gold in the Royal Mint vaults. Currently being tested for security and speed, RMG will allow instant transfers of gold to anyone anywhere in the world. And, Ro insists, it will bring a new era of accountability and gold-trading standards, saying, “There is no rehypothecation, there is no lending on that gold, and there will be enough physical gold to represent all the RMGs that are issued.” With an initial launch planned for summer of this year, The Royal Mint plans to back the token with up to $1 billion in physical gold bullion.
The project is similar to one being developed by Digix, a Singapore-based company that is creating a token backed by physical gold stored in Singaporean vaults. Digix’s DGX token will exist on the Ethereum blockchain, with 1 DGX representing 1 gram of physical gold. The big difference here is that Ethereum is an open, permissionless platform, so that anyone can trade DGX, while RMG will exist on a private blockchain for institutional clients.
Another big difference between DGX and RMG is that RMG will be traded among licensed dealers, who will then try to sell it to customers, likely charging a premium for profit. DGX, on the other hand, will be directly exchanged P2P, cutting out the need for middlemen. This is a textbook example of blockchains’ ability to disrupt traditional markets — why pay a dealer for RMG when DGX is traded freely? In an attempt to level the playing field, RMG will have no storage fees, while DGX will have storage fees built into the token’s code.
As blockchain technology progresses, we can expect to see a much bigger push toward the tokenization of assets. In the future, we will see silver, diamonds, our homes, our cars and even ourselves as digital tokens. The implications for streamlining commodity trade have yet to be fully grasped, but traditional players are moving fast to adapt, or face extinction. Now we are seeing the very beginning of asset tokenization, and gold will make a great test case for blockchain commodity trade.
State Farm announced on December 10 that it is experimenting with a blockchain-based solution for managing the subrogation process in the insurance industry, making the company the latest major enterprise to explore blockchain technology.