THE TOKENIZED GOLD REVOLUTION
Why Real Gold Bars Tokenized Through Mattereum are a Step Change for the Blockchain
Mattereum has always talked about the importance of tokenized gold, we even ran a small number of gold bars through the system as proof of concept years back — it worked, we tokenized gold with a Mattereum Asset Passport (MAP), listed it on OpenSea, sold it to buyers, who then used their NFT and MAP to go claim the gold bars from the vault. It was a bit rough, but it all worked, and this was in 2021 — back when everyone else was still mostly talking about RWAs being some sort of vision for the future. You may ask “what is so amazing and revolutionary about this?” because other people already offer “tokenized gold”, but this is not the same — tokenized gold products such as Paxos and Tether Gold are not tokenized gold per se, they are gold backed tokens, i.e. they are tokens whose value is guaranteed by gold owned by the issuers. This is an important difference. Mattereum works with partners to tokenize and fractionalize gold directly; that is, to create tokens that can be traded on the blockchain that also give the token holder actual legal ownership of the underlying physical gold itself. This is literally, ownership of a numbered, specific gold bar in a named vault that is owned by whoever owns the token, and they can, if they so wish, burn the token and take the physical gold home from the vault and hold it in their hands. The gold is owned by the token holder and not the token issuer.
Mattereum works with partners to tokenize and fractionalize gold directly
So, we did proof of concept. Now we have partnered with Sempsa JP, a Madrid-based globally recognized producer and distributor of precious metals, with decades of experience in the precious metals industry and renowned for its commitment to quality, integrity, and innovation. This partnership enables us to work with Sempsa JP to tokenize gold through our German regulated exchange partner Swarm in quantity, giving investors immutable proof of ownership and provenance so that every token has a traceable, legally enforceable, connection to a specific gold bar in a named vault. This will offer unparalleled security, transparency, and accessibility worldwide under the protection of international law in over 170 jurisdictions.
Every token has a traceable, legally enforceable, connection to a specific gold bar in a named vault
So why is this important? I think it was JP Morgan, or one of those guys, a century or so back, who said “Gold is money! Silver is money! Everything else is credit!” That’s the absolutely hardline position. That is because gold is a hedge against risk in some global sense. In the same way that Bitcoin is a hedge against risk in some global sense, but there are slightly different hypotheses for gold and Bitcoin about what happens if the existing fiat regime crumbles. The difference between the two is that Bitcoin is appreciating value very, very quickly and is extremely volatile. It is also subject to regulatory attack. Gold is accumulating value relatively slowly, but it is doing so steadily and is dramatically less volatile; it is also dramatically less subject to attack. The bottom line is that gold is extremely likely to hold value globally, even in a regime where the US dollar is in trouble. You don’t want to be 100% in Bitcoin as it may not, ultimately, hold its value, and because Bitcoin may also get into trouble with regulators. Gold on chain, though, gives you a lot of the same advantages that Bitcoin does, but with dramatically lower volatility. And there is a pretty good chance that even in your nightmare scenarios your legal claim on the gold, if it was done properly, through Mattereum, will survive.
“Gold is money! Silver is money! Everything else is credit!”
Now we get to the Mattereum role in this. It begins and ends with the ultra transparent documentation value provided by the Mattereum Asset Passport. There are a bunch of things that can be wrong with a gold bar. The most common problem with a gold bar is that you don’t actually own it. You have a piece of paper that says somebody owes you a gold bar, you go and ask him for the gold bar, it turns out that they do not own the gold bar, and there’s an entire industry around all of those issues. It’s not uncommon for people to sell your gold bar or lend the gold bar out to somebody else for interest. Then, at the point where you ask them for your gold bar, they go and get another gold bar from a third vendor, because the gold bar that you gave them is out for loan and if you need a bunch of gold in a hurry, they borrow it from somebody else. There are very complicated arrangements behind the scenes that give you the impression that everybody has all the gold that you want all the time but in actual fact, it can be a shuffle. It’s widely perceived in the gold industry that if everybody pulls the gold out at the same time you’d get a phenomenal wave of bankruptcy. Now, of course, nobody can prove that, because that would be illegal. A MAP nails the NFT to a specific, named, gold bar, so it makes all this jiggery pokery impossible. You unambiguously own that gold bar, not some notional one the gold dealer claims to have while switching it about behind your back for profit and which, when push comes to shove, there is a small, but reasonable, chance they might not be able to pony up when you ask them for it.
You unambiguously own that gold bar, not some notional one
To make it even easier to put gold, or any other high value asset on chain, the Mattereum group, through its German subsidiary Mattereum GmbH has a discount token, MATR*, on sale through the fully regulated German exchange Swarm. This gives anyone onboarding assets a discount of up to 50% on their onboarding fees, which is significant when you are talking about gold bars.
Mattereum also helps handle the the risks. The gold industry as it currently stands is very well equipped to deal with the major one, which is fake gold — gold bars that turn out to be tungsten bars coated with a thin layer of gold — tungsten has the same density as gold, so that happens. There are various other kinds of shenanigans too, where you’ve got gold in the vault, but somebody’s pulling bars out of the middle of the pile where it can’t easily be seen, those kinds of things. There’s just a whole bunch of gold fraud and a whole bunch of expertise in the industry dedicated to stopping it using lots of science or technology. The thing the gold industry is really not geared up for is gold bars, which are made of actual solid, real, gold, but not the gold you thought it was. This is the whole world of conflict gold.
The original, staggeringly bad, conflict gold problem was Nazi gold. We never fully dealt with that problem, and then it came back around with Congo and maybe even South America. No one really has a good understanding of the conflict gold landscape and where it’s really coming from, or not, as the case may be. But we know it’s an issue. A few years ago English banks were doing audits of their gold holdings and they kept finding duplicate bars, so they would have a bar that was Valcambi 123456, 400 pounds, then a bit later, they’d turn up another bar, and that too was Valcambi 123456, 400 pounds, and the problem was that they couldn’t tell which one was the original gold bar and which was the conflict gold bar that had cloned its identity. Now, there’s a whole bunch of ever more sophisticated science and technology stuff constantly being developed to stop that happening, but what that means is that there’s an arms race to get conflict gold sold as legit gold before the science catches up with it. That is a new fight for the gold industry and both sides are very sophisticated. The World Gold Council is attempting to set up some global scheme for bar registers as part of this, but a bar registry also becomes a record of who owns what, and people are quite freaked out by that for obvious reasons. People still remember the US’s 1933 confiscation of privately held gold. Basically, nobody knows exactly what to do about conflict gold, but Mattereum can help deal with this too by having an asset passport that provides money-back warranties on the gold’s origin and history. If you buy a bar, you know it isn’t conflict gold, because it is backed by warranties that give you your money back if it is, and this is legally enforceable almost anywhere in the world. We’re now in a position where it is possible to make peace over conflict gold by aligning global systems using English common law through MAPs and the blockchain. Gold can be put on chain at source, with a MAP documenting its origin and updated every step of the way, giving purchasers a scrupulous and unambiguous provenance that makes it impossible to slip dodgy conflict bars into the supply chain unseen.
Mattereum makes it impossible to slip dodgy conflict bars into the supply chain unseen
This gold story is complex, and there are lots of aspects to it that are relevant to Mattereum’s tokenized gold partnership. The next aspect is the business of yield generating assets — there are a bunch of games which are played on yield. Let’s narrow it down to variable yield assets. I own a property, it generates rent. The rent varies over time and the value of the property varies over time, but we’ll just deal with the rent. The rent is a yield and that yield varies over time. We can then do a bunch of weird things with that yield so I can make you a bet that the yield will be over 1200 dollars, and if it is over 1200 dollars, you give me money. That’s a bizarre kind of thing, but the world is filled with bizarre kinds of things that people do with yield — tranching your mortgage, collateralized debt obligations, all those kinds of things. As soon as you have a variable yield asset like rent, or mortgages, people start finding ways of betting on it. So the typical way of doing this is the repayment rate on a mortgage. I basically have 100 mortgages. I tell you that on average 98% of those mortgages pay back. I then say I would like to sell you 20 years of these mortgages paying back at 98% for 95% of that amount. You say I get 3% free money. Realistically, I might take 80% and you get the equivalent of 3% a year for that time period because you bought it low and then they paid back over time and you go “great, I made money!”. If the yield is thought to be more variable than that, I might take a tranche. The basis of that is taking the most certain payments and the least certain payments, and selling them to different people at different prices, and those are what’s called tranches, e.g. for one buyer you say, “They’re meant to pay me a million dollars a month in total. I am going to sell you the first 600k that comes in”, in theory that should be completely secure for the rest of time. So for the next buyer you say “I’m gonna sell you everything that comes in between $950,000 and $1 million”. That might not come in all the time, but it’s probably going to be there most of the time. What I’m doing is I’m pulling the payments forward and invariably discounting the payments depending on how probable they are. Make sense? This stuff is basically just various forms of sophisticated invoice factoring when all is said and done. It’s invoice factoring, but they call it high finance. A lot of hedge funds and pension funds will try and have a mixed balanced portfolio of these kinds of things and they’ll use sophisticated maths to try and make sure it all balances out over time.
The entire world runs on these bets — futures markets. But in the long run, what we know is that most people are optimistic about their guesses about the future, because of persistent psychological biases; everybody wears rose-tinted glasses, particularly when they’re selling. As a result, what happens is that bad bets accumulate in the system at an enormous scale for a variety of factors, but mainly it’s down to optimism about the future, a tendency to ignore bad data, expectation of government bailout and and things along these lines. This causes this entire world of variable return stuff to gradually be assumed to be more and more shaky. The further out you go, the more risk piles up into the system, and more or less the entire global financial system is built out with this. It doesn’t have to be, though. If you want a relatively steady state economy, you start looking at things like tranching corn. Here is a field. It grows about 100 kilos a year. I would like you to pay me now for 80 kilos of that and the remaining 20 kilos you could have for half, right? You get where you can start making bets about things which are more sure. Then you get down to things which have no variability at all.
The further out you go, the more risk piles up into the system
When we ran society with no credit and no optimism bias and no betting about the future, we were in a steady state for centuries. When we injected optimism about the future and bets, what we got was crazy amounts of risk taking and speculation which turned out overall to be staggeringly performative in terms of generating innovation, which generated wealth, but in the process, we also generated a system of massively pathological incentives, because if you’re only dealing with a 20 year variable rate, the thing only has the last 20 years. So the suggestion is that basically, because we kind of packaged all that risk in particular ways, we created a situation where the underlying stuff of the world began to be depreciated in the same way that the financial instruments deriving the stuff tended to be trashed. The construction of the system basically faded the future out in a variety of ways. As a result, what we’ve been doing is consuming the underlying yield-generating resources as a way of generating artificial fake yield. In theory, you’re meant to be selling the harvest from the land. In practice, you push the land so hard that you’re effectively burning the capital of the land to generate the harvest. It’s almost like a Ponzi scheme on farmland. If we deplete the farmland every year to keep the same consistent yield, and then one day that stops, any financial instruments that are based on this yield continuing are suddenly worth nothing. What we’re doing is basically exporting risk into the future by destroying the present invisibly by degrees.
That’s been quite a detour, but let’s get back to the case for digital gold. The world needs to be more like the world was like before 1971, which is when we came off the gold standard, so money stopped being gold and the basis for its value became free floating. The world before 1971 did much heavier innovation at a much larger scale. We were staggeringly wealthy and the whole thing was really running great, apart from the fact that we had an infinite demand for oil and we didn’t have an infinite amount of gold to pay for it. But if we had to pay for the oil in gold, there’s a pretty good chance we’d be using a whole hell of a lot less of it and we’d be much more careful about how we lived.
The case for digital gold is the case against credit. It’s the case against tranches. It’s the case against complicated index portfolios and all the rest of that stuff. It’s the case against risk. We have gold, a 5000- to 8000-year-old asset that has had relatively consistent value for the entire time period, and we’re going to use that as our yardstick of value, rather than this portfolio of .com stocks, and rather than Bitcoin, which is a very untested bet, and is not even intended to be stable, it’s intended to be massively deflationary. Then we come to gold on the blockchain, e-gold, which I was paid in in the 1990s, Digi gold or the Ian Grigg stuff, Doug Jackson stuff. The way that cryptocurrency started was with gold, but this was derailed by both external and internal actions. Firstly, the US government absolutely hates crypto, it likes to have control over currency and information and crypto threatens both. With cryptography itself, in the ’90s, the US decided that uncrackable strong cryptographic applications like PGP (Pretty Good Privacy) were munitions and put them under ITAR, the International Traffic in Arms Regulations, a regulatory regime to restrict and control the export of defence and military technologies. This led to the cypherpunks getting tattoos of PGP code, and suggested that the US really hadn’t got the hang of this internet thing back then, despite their military academic complex having invented it. This did not work, unsurprisingly, and strong crypto went on to underpin Web 2.0 and modern online payment systems. The US government sat hard on e-gold too, on the basis that it was a conduit for money laundering and criminal enterprise. They also saw huge potential for Ponzi schemes in crypto, and the US government absolutely loathes Ponzi’s since such things were at the root of the 1929 bank crash. So, early attempts at de-dollarizing through crypto were stifled at birth. Mattereum’s system breathes new life into the concept, though, as it is built on transparency and legal compliance, so cannot be used in the way the US fears. Secondly, internal resistance came from blockchain purists, who felt the link to gold tied crypto too heavily to the physical world that it was intended to transcend, although, I note, they seemed less resistant to linking it to the dollar. The paranoid among you might see some kind of hidden hand at work there…. But in the end, gold is a global system not controlled by any single government, which is exactly what crypto aspires to be, so logic suggests they are natural partners. Mattereum’s creation of a global marketplace of 170 countries in which tokenized gold can be freely traded enables this, by binding the NFT to the physical gold and backing it with legally enforceable money-back guarantees.
The case for digital gold is the case against risk
For the notion of a digital economy, gold is an exemplar. Gold is old and stable. For digital economics we need to use old global stable assets as yardsticks and value. Gold is the first, but then there’s agricultural land — this is why Matterum is interested in gold and real estate. These are things which have been valuable in consistent ways for the whole of human history, and nothing says that we can’t use those things for payments. Nothing says we can’t use those things for wealth storage. It has been very difficult to do because of stuff in the fear ecosystem that’s existed since ’71. The transactional costs have always made it very difficult to do that stuff as well. But the fundamental truth of the situation is that most of the world’s genuinely wealthy people keep most of their assets in things which are pretty durable and the exception is the new money.com stuff. If you look at the old money, the old money’s more or less all buildings, and occasionally trade. So the argument is basically this. It is possible, using crypto, to massively cut the transactional costs and open up the old money ecosystem to young money, and to open up the big money ecosystem to small money. This is what Mattereum is doing.
Mattereum opens up the old money ecosystem to young money and the big money ecosystem to small money
Gold is the beginning of that process and then you do land, then you do real estate, potentially art, this is the democratization of the real wealth machinery. Then what goes with all these asset classes, the fundamental question is, “is it there?” And the answer to all doubts about “is it there?” is massively ramified insurance. Again, the old money assets are heavily insured, and heavily physically protected. That’s what the vaulting system is like. And by the way, there’s $20 trillion in vaults or whatever the number is. This is how the big guys do it and, yes, you could do it that way. We do not expect the existing system to survive without radical transformation, partly because of the overuse of credit in the American economy, or at least the global economy. And secondly, there is a huge push, I mean, just a huge push to try and figure out some kind of ecological economics framework which will work more globally and that’s the fundamental bedrock.
So you have gold, you’re doing transactions in gold, you have all the same fundamental financial needs that anybody has in the money economy. So if you need to borrow, if you’re making payments in gold and you don’t have enough gold, so somebody lends you gold, by all means do that, but it has to be understood by all parties that the gold is not yield generating. It’s not that you can make a bunch of investments, borrow money, hope investments going up will be enough to pay the interest and then come back to it. It’s just not that kind of thing, because the gold itself is not yield generating. While there will always be people to play games at the edge of that stuff and make bets on the gap between the say, fiat performance, gold performance, Bitcoin performance, all those games are there, but that is just dragging a hard asset back into the insanity.
By tokenizing gold, we are making it possible to do transactions in actual, real, gold in the modern system, digitally, on the blockchain, backed by warranties and insurance, which no one else can do. It has all the advantages of a slick modern system along with those of having someone turn up in a Fugger counting house and make their payment by tipping out a bunch of gold coins on a table that then go in a vault. Solid and tangible, but liquid and tradable; unambiguous ownership, consistent, long term value, and it isn’t going to destroy the world in a riot of over-optimistic speculation and evaporated value:
Tokenized gold on chain with a Mattereum Asset Passport.
Find out more about Mattereum GmbH’s token sale*.
*The Mattereum Discount Token (MATR) is available for purchase through Mattereum GmbH’s fully regulated German crypto exchange partner, Swarm. Buying MATR is subject to terms and conditions in eligible jurisdictions — in particular, residents of the United Kingdom and the United States of America are excluded from the public sale of MATR.
