DGLD is a gold tokenization project that was launched on 15 October 2019 by a European consortium, made up of CoinShares, Europe's largest digital asset managers, Blockchain (aka "Blockchain.com"), the provider one of the world's most popular crypto wallets, and MKS (Switzerland) SA, the trading arm of the MKS PAMP Group, "an industrial and trading services group specialising in all aspects of the precious metals business."
In this article, we provide an overview of this project, and with the help of Daniel Masters, the Executive Chairman of CoinShares, try to get a better understanding of DGLD and what makes it special.
The Launch of the DGLD Network
At inception, each DGLD token represents 1/10th of a troy ounce of physical gold stored in a Swiss vault.
These tokens live on a sidechain built on the Bitcoin network. That sidechain platform is CommerceBlock's open-source Ocean platform:
Through CommerceBlock's MainStay attestation protocol, every DGLD token creation, redemption for physical gold, or any transfer of tokens to another wallet is cryptographically attested and 'proven' (validated) via the Bitcoin blockchain...
DGLD is aimed at both retail and institutional investors. In the case of the latter, UK-regulated capital markets firm Globacap (an FCA-regulated custodian) is able to provide a custody service for DGLD.
One last thing worth noting is that DGLD is not currently available to investors in North America (although CoinShares is examining ways to market this product in the U.S. in a compliant manner).
Here is what the CoinShares Chairman had to say about DGLD back in October:
DGLD combines the stability of the world's most enduring asset, gold, with the security of the world's most resilient network, Bitcoin. You can now have the peace of mind of Swiss vaulted physical gold, with the same convenience, but not the same layers of middlemen, as owning a gold ETF.
As for Marwan Shakarchi, the Chairman of MKS (Switzerland) SA, he stated back then:
DGLD is the natural progression of our work with gold, and gold formats at MKS. With DGLD, we've created a new format for gold ownership which makes vaulted physical gold, digitally useful, 24/7. This has the potential to profoundly change the way gold is used in everyday life.
Launch of Trading of DGLD on 'Blockchain Exchange'
On 12 December 2019, roughly two months after the DGLD network was launched with more than $25 million in investment-grade physical gold (stored in Switzerland), DGLD trading launched on Blockchain's institutional-grade crypto exchange "Blockchain Exchange".
Charles McGarraugh, the Head of Markets at Blockchain.com, had this to say about the all the arguing that goes on between the supporters of gold and Bitcoin:
Too often gold has been pitted against bitcoin as rivals. With DGLD we've thrown that question out of the window to say that the world's two hardest assets are ideal complements for investors across the world. Market conditions are likely to increasingly favor hard assets in coming years, and I see this mutually beneficial interplay only increasing over time.
So far, around $50 million of physical gold has been tokenized by CoinShares.
Interview with Daniel Masters, the Executive Chairman of CoinShares
Q: What is DGLD and what is the motivation behind it?
A: DGLD is a digital depository receipt for representing allocated physical gold. Now, let's think about two assets for a moment. Let's think about gold and let's think about Bitcoin.
And you can think about those two assets on two dimensions:
- How digital is that asset.
- How connected and how dependent on the legacy financial system infrastructure is that asset.
So, if we think about Bitcoin and you think about that two dimensions Bitcoin is the ultimate digital bearer asset, right? It's totally digital -- it is totally independent of the legacy financial system.
And if you think about gold, gold is an enduring commodity for 5,000 years. It is the original and the ultimate bearer asset, but it's completely non-digital. In other words, it's the other end of the spectrum from Bitcoin.
Now, as the world has become more sophisticated and more digitized over time right, gold has also taken on some more digital properties. As it becomes more digitized, it becomes ever more dependent on the legacy financial system. Ironically, when you buy a call option on a gold ETF, such as GLD, you may be buying it for insurance on financial calamity of some kind -- a breakdown in the system -- and if that system actually breaks down, you're probably not going to get your gold.
What we've done is we've issued a digital gold certificate that is the ownership of physical gold, in other words, if you take your private keys and your tokens on your phone and you go to Switzerland and you present these to the vault, you'll get your gold. It's as simple as that, and you can transfer them peer-to-peer, you can trade them on an exchange, or you can redeem them for physical gold.
Now, you need to rely on a custodian. We use a company called MKS, and MKS is Switzerland's premier gold vaulting and fabrication company. There's a huge amount of gold in their vaults -- MKS is a highly trusted name. And they are the people that if you go and present your tokens, that gold will be redeemed by them. So, what we've done, effectively, is we've cut all of those people out of that middle, and no matter what happens, so long as the internet works, you have your tokens and you can go and redeem your gold -- your DGLD tokens are the representation of legal title to the gold.
Q: Can you talk a little about the technology behind DGLD?
A: We adopted something called a Bitcoin federated sidechain. We have a permissioned part of the chain that enables coins to be issued and coins to be redeemed, but everything else, essentially, works on the Bitcoin architecture. We peg the state of our database and the mapping of our tokens to our assets back to the Bitcoin blockchain. So, we're using all of the security of the Bitcoin blockchain while still having the ability to do what we need to do to satisfy the legal regulatory prescription.
Q: What makes DGLD stand out from competing gold products?
A: I think with any new financial product, the number one goal is to gather the trust of the users and the trust in the instrument -- that's absolutely paramount, and when you put together Europe's largest digital asset manager, one of Europe's most innovative technology companies, Switzerland's best reputed gold fabrication and vaulting company, and the world's biggest wallet infrastructure, I think you have the most trusted and capable group you could possibly have.
Second, I think our technology solution where we get this semi-permissioned environment that nonetheless is widely distributed across blockchain system and it's very close to bitcoin architecture, I think that's the right technology to go with it.
Third, I think, in terms of jurisdiction, we've seen other coins being launched in other jurisdictions. I think Switzerland is the natural home of gold anyway. Switzerland, I think, is the most advanced regulatory environment in the world by far when it comes to digital assets.
Forth, we've not done any external funding, i.e. not dependent on anybody else funding this project. It's been funded by strong financial partners. There is no risk of any problems in that regard. We already have critical mass with $50 million in tokenized gold, and that number is growing rapidly.
So, you add almost things up, and no other gold project can claim even half of those things in my view.
Q: Last October, Grayscale Investments launched their "#DropGold" campaign, which mocked gold and explained why investors should drop it in favor of Bitcoin. Do you not feel frustrated by that anti-gold campaign?
A: I'll tell you something -- it was one of the best things that could happen to us. You know why? We are not coming to this from the angle that Barry [Silbert] is coming from. Barry is saying Bitcoin is better than gold. We're saying gold could do better by being more like Bitcoin, but they're both good. Now, the reason that was so good for us is that it made all the gold companies want to react and do something in digital assets. That's why MKS is a partner in this project. It made all gold players all want to be able to do what Bitcoin can do, and so we're giving the opportunity to do that. So, thanks Barry!
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