A Comprehensive Explanation of Tether’s gold-supported stablecoin 

Definition of a Tethered Asset

Tethered assets can be backed by one type of security, for instance, gold or a particular fiat currency, providing improved flexibility and risk management alternatives. The flexibility permits tethered assets to monitor various asset prices, including commodities like gold and major fiat currencies like the United States dollar. 

Tethered assets have a determined value to a unit of the underlying assets via a different mechanism, mainly merging over-collateralization with strong liquidity pools on secondary markets. The reserves held surpass the issued assets’ value and ensure seamless trading in secondary markets, hence stabilizing the tethered asset’s value.

Alloy (aUSD₮) by Tether  

AUSD₮ is the initial Alloy by Tether created to monitor the United States dollar using Tether Gold as security. Ethereum Virtual Machine (EVM)-compatible smart contracts are used to mint it, ensuring seamless integration and interoperability within the broader Ethereum ecosystem and its different compatible blockchains. 

Alloy by Tether uses Tether Gold (XAU₮) as security to position itself as a digital asset anchored to gold’s rarity and stability. XAU₮ refers to an ERC-20 token equivalent to a troy ounce (31.1 grams) of gold on the Ethereum blockchain.

Alloy by Tether is a technological platform that uses smart contracts. Nevertheless, El Salvador’s National Commission of Digital Assets (CNAD) approves Moon Gold El Salvador, S.A. de C.V. to address aUSD₮’s provision and management.

Interaction with the Alloy by Tether Smart Contracts

Alloy by Tether’s web interface can be utilized to access smart contracts. Users can use XAU₮ to generate and redeem aUSD₮.

Experts can utilize specialized tools to interact directly with the contacts. Only confirmed Ethereum addresses that have completed KYC checks can engage with the contracts.

Alloy (aUSD₮) Functions Explained

Overcollateralization

aUSD₮ tokens are backed by a greater Tether Gold (XAU₮) value than its face value. The excess XAU₮ serves as a buffer, protecting aUSD₮’s stability against possible changes in gold’s price. 

Locking a specified Tether Gold amount into a smart contract enables users to mint and manage aUSD₮. A collateral-to-asset ratio determines the maximum aUSD₮ to be minted.

Alloy by Tether Vaults

Vaults are utilized to mint and manage aUSD₮. The smart contracts allow autonomous and permissionless confirmation of the aUSD₮ security backing aUSD₮ circulation.

Vaults’ roles in aUSD₮ include facilitating the storage of unissued aUSD₮, security, and users’ collateralized minted position data.

Procedure to Acquire Alloy Explained

aUSD₮ acquisition can happen by moving XAU₮ to the aUSD₮ smart contract. The XUA₮ is minted, and a corresponding aUSD₮ amount is issued directly to the user’s address. 

The three types of fees charged by Alloy by Tether include the mint, return, and liquidation fees. The mint fee is the fee users incur when generating new aUSD₮ tokens.

The return fee is paid when redeeming aUSD₮ tokens for underlying collateral. A liquidation fee is incurred when users’ collateralized position falls below a specific threshold, evoking liquidation.  

Benefits of aUSD₮

aUSD₮ is a unique investment opportunity. The U.S. dollar peg and gold’s intrinsic value stabilize the stablecoin, averting unpredictability.  

aUSD₮ is founded on the Ethereum blockchain and uses auditable smart cards, offering transparent, safe minting and redemption processes. It provides a robust alternative to the conventional banking system, offering diversity and stability to investors.

Differentiating aUSD₮, USD₮ and XAU₮

Tether is designed for daily transactions, while XAU₮ is appropriate for investors seeking exposure to gold. aUSD₮ merges the dollar’s security with gold’s security, providing possible yield generation via its unique over-collateralization process. 

Retrieval of XAU₮ Deposited as Security Explained

Users should utilize the Tether Vault smart contract to request a withdrawal from Alloy. If the withdrawal results in the MTV ratio exceeding the 75% liquidation point, the request is denied, ensuring the system stays overcollateralized. 

A withdrawal request will not be sanctioned if it surpasses the 75% MTV ratio. Users can reduce their MTV ration by giving back part of their generated aUSD₮ before another withdrawal attempt. 

Final Thoughts

To repossess all deposited XAU₮,  users should return the complete minted amount of aUSD₮ they generated. This may need purchasing back some aUSD₮ on the secondary market to compensate for the deposit and fruitfully execute the withdrawal process.