What is Alloy (xUSDT) and How Does It Work?

What is a Tethered Asset?

A tethered asset is a type of investment product or digital currency that is able to track the price performance of various referenced assets such as USD. Therefore, stablecoins can be considered a prime example of tethered assets that are backed by one or the other classification of collateral such as gold, fiat, or multiple asset classes.

On account of greater asset diversification, tether assets are able to distribute risk and offer higher investment flexibility.

At the same time, tethered assets are under obligation to maintain the specified ratio with the underlying asset class by incorporating different types of mechanisms. One of the most common methods used to maintain the peg is overcollateralization.

This is done by establishing liquidity pools to enable secondary market access. In this manner, investors can easily align the tethered assets with referenced assets.

What is Alloy (aUSDT)?

Alloy is a type of stablecoin that is backed by gold and issued by Tether. This token is denominated by aUSDT and it makes use of EVM-compatible smart contracts and leverages Tether Gold (XAUT).

In this manner, it has exposure to real gold and allows investors to hold it using digital representations or tokens as proof of property. aUSDT is the first gold-backed token issued by  Tether which uses gold as collateral.

The users can mint new tokens based on Ethereum Virtual Machine (EVM) smart contracts. In this manner, it makes for better interoperability and incorporation with the overall Ethereum network.

At the same time, the platform is also compatible with multiple blockchains that improve its efficiency by many folds.  Tether uses Tether gold as collateral for Alloy token such that it is pegged to gold and its value Is driven by the rarity of gold reserves.

XAUT is an ERC-20 compatible token that is equal to one troy ounce (31.1 grams) of gold that trades on the Ethereum blockchain. In this manner, every blockchain that hosts XAUT is able to sore real gold that is present in the vaults of Switzerland to custody the reserves owed to Tether Gold token investors.

Alloy makes use of smart contracts. In El Salvador, the National Commission of Digital Assets has authorized Moon Gold NA, SA, and CV. All these gold-backed token projects issue and manage aUSDT.

The unique feature of this project is that investors have the ability to interact with smart contracts directly by special tools. Verified Ethereum addresses with KYC verification ticks are able to interact with these smart contracts. Alloy has also provided all the necessary details about this option on its official website and front-end documentations.

How does Alloy Work?

Here are some of the most important operating aspects of Alloy that all investors must be aware of in advance:

Over-collateralization

Alloy (aUSDT) is an overcollateralized token. It means that the total amount of gold backing Alloy token supply is greater. The surplus XAUT is a type of buffer that prevents the lapse of peg in the event of unexpectedly high fluctuations in international gold prices.

Therefore, the greater proportion of backing gold reserves as collateral always remains higher in comparison to the spot price of total quantity or circulatory supply of aUSDT tokens at all times.

A specified quantity of Tether Gold has been tied to specified smart contract. In this way, maximum aUSDT minting is based on the proportion of collateral to asset which is also called liquidation point.

Tether Vaults

The core smart contracts in Tether’s gold vaults are smart contract enabled. These vaults are used to custody different types of reserves that are utilized in mining operations and management of aUSDT token.

The same smart contracts are also used to ensure autonomous and self-sufficient verification for XAUT collateral that backs aUSDT supply. Here are some of the key utilities:

• Consumer collateral storage.
• Not-issued aUSDT custody.
• Placement for collateralized minted positions (CMP) details.
• Recording trading metrics such as aUSDT and XAUT such as mint-to-value (MTV) ratio.

Collateral Liquidation

Liquidation takes place when collateral used to back digital tokens drop below of the minted limit. One CMP is 75% liquidation point in accordance with the MTV ratio. It indicates the total amount of collateral value that can be minted at any given time. 

Conclusion

Investors who wish to diversify their trading portfolio by investing in gold can purchase aUSDT token using different trading platforms, secondary markets, DeFi trading protocols, and liquidity pools.