Source: Cointelegraph Original: "{title}"

Views from: Kevin Rusher, Founder of RAAC

The world today is full of volatility. Since the beginning of this year, the stock market has been on a rollercoaster ride, gold has surged significantly, while cryptocurrencies find themselves in an awkward position of stagnation. Investors are selling off risk assets in search of safe havens, with gold leading this trend.

Although gold is considered a safe asset, it is not "productive"—unlike cash and government bonds, gold itself does not generate income. Now, more than ever, there is a need for gold to be able to generate income, especially in the DeFi space.

Currently, the only way to make money from gold remains "buy low, sell high." However, most investors do not purchase gold in this manner for a reason—over the long term, gold's performance is generally stable, with fluctuations but lacking a narrative of sustained growth.

For instance, after the 2008 financial crisis, gold prices soared by 148%, but remained essentially stagnant for nearly a decade until the COVID-19 pandemic triggered a new round of increases. While gold remains an excellent hedging tool, its long-term performance is not growth-oriented.

As a result, many investors prefer to include U.S. Treasuries or high-yield savings accounts in their balanced portfolios. Although gold may outperform these assets during uncertain times, its balance between safety and stable income does not hold up in the long run.

DeFi Solutions

This is where DeFi can bring innovation to the world's oldest asset. DeFi has the potential to modernize gold investment, not only providing the speed and transparency of blockchain transactions but also the possibility of earning yields.

However, most "tokenized gold" currently remains indistinguishable from exchange-traded funds (ETFs). For example, gold-backed tokens launched by stablecoin giants Tether and Paxos, while claiming to be fully backed by physical gold reserves and audited, similarly fail to generate income.

Most DeFi investors prefer liquid and tradable assets, such as cryptocurrencies and stablecoins, as these assets can yield substantial returns. Many would rather purchase Tether's stablecoin USDt (USDT) and stake it to earn rewards while retaining ownership of the asset.

Perhaps this is why the market capitalization of gold-backed tokens remains limited. For instance, the largest gold token globally, Tether Gold, has a market cap of less than $750 million, while Paxos Gold has a market cap of about $650 million. Together, they account for less than 1% of USDT's market cap.

Activating Gold's Yield Potential

To truly unlock the potential of gold, we need to further advance the development of tokenization, creating a DeFi ecosystem where gold tokens can be lent, borrowed, and participate in yield strategies.

For example, gold mining companies could issue tokenized versions of their reserves, which could be converted into stablecoins and earn yields through staking. With protocols that have strong liquidity mechanisms supporting stablecoin and real-world asset (RWA) trading, holders can access more yield opportunities throughout the DeFi ecosystem.

In addition to yields, blockchain also provides gold investors with the flexibility of 24/7 trading, real-time price discovery, and near-instant settlement, all without affecting the stability of the gold asset itself.

The Future of Gold Investment

Perhaps ironically, just as governments around the world begin to recognize digital finance, gold has once again become a hot commodity. As governments gradually "acknowledge" digital finance, public interest in gold will also rise. In the current context of global turmoil, the demand for gold in the market will only increase.

DeFi is expected to merge these two trends, driving the natural evolution of gold ownership and building a solid bridge between traditional finance and digital finance. Gold in traditional markets provides stability for investors, while DeFi brings new yield opportunities that do not compromise stability.

For thousands of years, gold has been a symbol of wealth, a hedge against uncertainty, and a protagonist in human mythology. But in today's financial system, it is in urgent need of an "upgrade."

By integrating gold into the DeFi ecosystem, we can fully unleash its true potential—not only as a store of value but also as a sustainable income-generating asset. This world's oldest safe-haven asset stands on the threshold of digital evolution.

Views from: Kevin Rusher, Founder of RAAC

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This article is for general informational purposes only and does not constitute investment or legal advice. The views expressed in this article are those of the author alone and do not represent the views or positions of Cointelegraph.

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