Not too long ago we reviewed gold-backed cryptocurrency, or in other words, stablecoins pegged to the precious metal. A logical continuation of that review is to see which silver-backed digital currencies the crypto market has to offer. It did not turn out to be as easy to find legit silver-backed tokens worth your while but here are our findings!
Key Takeaways
- Although stablecoins backed by precious metals are rarer than their fiat-pegged counterparts, there are quite a few of them.
- It is usual for silver-backed crypto to have a circulating supply equal to the amount of physical silver held by the custodian or issuer. Kinesis Money (KAG) and tSILVER (TXAG) claim to be working by this model.
- An alternative would be an algorithmic or crypto-backed stablecoin that follows the price of silver, like sXAG of Synthetix. Although it would mean no redemption for physical silver, it is still more convenient to trade and less trust-reliant.
Which Cryptocurrency is backed by precious metals?
Generally, cryptocurrencies are not backed by any real-world assets. The framework for their value is decided through supply and demand dynamics and then the prices can fluctuate depending on the market sentiment and news and updates. We have recently made a guide to explain why the prices of cryptocurrencies are the way they are.
However, there is a special category of cryptocurrencies directly linked to other assets, called stablecoins. These cryptocurrencies usually come in the form of tokens, having no blockchain of their own. The prices of these tokens track the value of the asset they represent through different means.
Most stablecoins currently on the market are pegged to fiat currency, most commonly — the US dollar. But that is not the extent of stablecoins: some stablecoins represent precious metals, like physical gold and silver.
Why are there so few stablecoins and tokens backed by precious metals?
One would think that blockchain is a recipe for a perfect digital alternative to owning silver with an inclusive nature and other benefits of crypto. However, in comparison to other types of stable assets, gold-backed cryptocurrencies and silver tokens are somewhat rare. There are a few possible explanations for this.
Firstly, one of the most common use cases for cryptocurrencies and tokens is the medium of exchange. In other words, they are used for payments or value transfers. Historically, physical silver and gold have proven to be somewhat inconvenient for that purpose. The gold standard was retired not only because of transportation issues but also due to the volatility of precious metals’ value.
Relative to cryptocurrencies, precious metals are somewhat stable but still not stable enough to become accepted as a means of payment.
Secondly, there are logistical problems that arise from maintaining silver-backed cryptocurrencies. Stablecoins backed by real-world assets have two options to maintain their value: be backed by physical assets or use the features of blockchain technology. For the former solution, safe storage for physical silver and a way to redeem the assets has to be implemented. The latter is easier to implement with oracles (feeds that send blockchains and smart contracts real-world data) or algorithmic price balancing. Obviously, as a result, these tokens will not be redeemable and can have issues with stability in the long run.
To maintain price stability, there are two solutions: back a cryptocurrency with physical silver or have it track the silver’s price. Neither is perfect, as the former requires extra steps and the latter would not fully be adequate to the definition of silver-backed crypto.
3 Silver Tokens Worth Checking Out
Nevertheless, although rare, there are some examples of precious metal-backed cryptocurrencies that cover silver. We have already reviewed some of the most popular and legitimate gold-backed cryptocurrencies. This time, we will introduce you to silver-backed cryptocurrencies that are available as of 2024.
Kinesis Silver (KAG)
Kinesis Silver (KAG) is a part of the Kinesis Money platform, along with Kinesis Gold (KAU). The platform includes software and hardware wallets, a crypto debit card, and an exchange. They provide clients with a hedge in precious metals and woo them to the platform with a promise to share profits. Kinesis runs on a blockchain based on a fork of Stellar which does not seem to be used by other cryptocurrencies or projects.
One KAG token represents ownership of 1 ounce of silver in the vaults managed by Allocated Bullion Exchange (ABX), a partner of Kinesis. This asset can be redeemed starting from 200 ounces in exchange for investment-grade silver and divisible for up to 0.00001 KAG. The main use case for KAG on the platform, though, is spending as a digital asset with the card or in the wallet app.
In the stable asset category we are reviewing, KAG is the largest one in terms of market capitalization. For reference, its $81,698,703 market cap lands it around 424th place in the rankings. The fact that all trading volume for KAG comes from three centralized cryptocurrency exchanges probably doesn’t help it. Another detail worth keeping in mind about Kinesis is its profit-sharing scheme: without healthy network activity, profit-sharing will not sustainably generate the yields it promises.
tSILVER (TXAG)
Another silver-backed token in this category is Aurus’ tSILVER. It is a part of the precious metal-backed lineup of tokens for the ecosystem from this team. Since they offer a gold-backed digital currency as well, we have covered them in the corresponding article.
tSILVER is a silver-backed asset that tracks the price of one gram of silver in an investment-grade bullion. It is divisible in fractions of up to the 18th decimal (but be mindful of the platform’s and transaction fees). Aurus keeps the underlying assets in vaults in five locations worldwide and claims their tokens are redeemable in a 1:1 ratio.
Because the Aurus platform is similar to Kinesis Money, most of the pros and cons of that project apply here as well. There are a few notable differences, of course: Aurus uses the Ethereum and Polygon chains, and its silver token is an even smaller asset than KAG: it has a $1,239,350 market cap and ranks 2295th at the time of writing. tSILVER is traded with the TXAG ticker on Uniswap.
Silver Token on Synthetix — sXAG
The last silver-backed digital asset in our non-definitive list is actually a derivative. It is a financial instrument that lets you trade something without actually owning it. On the decentralized derivatives exchange Synthetix, crypto traders can choose a silver-based Synth (this is what they call synthetic assets over there) sXAG.
Synth sXAG, as the name implies, is not backed by physical silver, so it won’t suit silver bugs who would like to use it as a store of value. However, it is a perfect solution for anyone who wants to trade silver and capitalize on its price fluctuations. The Synth prices are not only constantly verified by the Chainlink oracles, but also their value is backed by the native Synthetix SNX token as collateral. You can read more about how Synthetix works in our Beginner Guide!
As for the sXAG Synth, admittedly, it is not the most popular asset. This token that tracks the price of 1 ounce of silver has around two hundred holders. In total, Synthetix users have created about 3.3 thousand sXAG units. It is understandable, considering that crypto traders are not a bunch wary of extreme volatility in the first place. Still, isn’t it nice to have the option?
Pros and Cons of Cryptocurrency Backed by Silver
Summing up the review, what are the benefits of having silver be represented by a crypto token?
- There is more transparency and confidence in the purchasing power of the token;
- It is easier to transact, transfer ownership, and divide tokens than physical silver bullion;
- Like other precious metals, it gives a hedge against market volatility.
Obviously, there are cons to crypto backed by silver specifically:
- Counterparty risk is a glaring issue. You have two options: trust whoever stores and redeem the assets. Alternatively, you could go with a more decentralized alternative but these also rely on a set of protocols that creates a single failure point.
- The liquidity of these assets is not as good as it could be. There are very few markets for these assets, meaning issues like slippage or price volatility can occur.
- Despite silver being fairly well-regulated on the traditional markets, its crypto counterparts are outside of these legal frameworks. There is no use counting on the same investor protections.
- Technological risks connected with blockchain. The level of UI/UX is generally better with Web3 products now but there is still a risk of sending assets to a wrong address or losing private keys.
Conclusion
In comparison to gold-backed cryptocurrency, it’s far more challenging to buy silver bullion-backed crypto. Nevertheless, since the demand is there, offers seem to follow, so it is absolutely possible to find silver-backed coins.
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Frequently Asked Questions
Which crypto is digital silver?
“Digital silver” is the nickname for Litecoin (LTC) but it does not mean Litecoin is backed by silver or pegged to its price. The moniker comes from an analogy to Bitcoin, which is called “digital gold”.
Is there a token for silver?
There is no single token backed by silver but rather, a few offers on the crypto market. As of 2024, the ones still around seem to be Kinesis Silver (KAG), tSILVER (TXAG), and a Synthetix derivative sXAG.
What is the name of the silver coin in crypto?
If you are wondering about silver-backed stablecoins, see Kinesis Silver (KAG) and tSILVER (TXAG). If you want to know the actual name for the “digital silver” on the crypto market, that’s Litecoin (LTC).
