Theo Taps Gold Futures for Yield-Bearing Stablecoin Amid $100 Million Raise

Gold prices have wavered amid the ongoing U.S.-Israeli war with Iran, but tokenization platform Theo indicated on Tuesday that experimentation with the precious metal continues apace.

The firm has raised $100 million to offer thUSD, a “gold-powered stablecoin,” according to a press release. Although most stablecoins are backed by cash and U.S. Treasuries, Theo said thUSD won’t be among them.

Instead, thUSD will seek parity with the U.S. dollar based on reserves of thGOLD, a token introduced by Theo in January. That token, which also generates a yield, is backed by secured lending agreements between Theo and gold retailers, such as Singapore’s Mustafa Gold.

As a result, Theo said that thUSD will generate yield from two independent sources. When thUSD is minted, Theo signaled that it will simultaneously short gold features through venues like the CME, betting on a decrease in the precious metal to mitigate exposure.

By holding a long position through thGOLD while shorting gold futures, Theo aims to capture a spread between the asset’s spot price and futures price, known as a cash-and-carry trade. When Theo unveiled a $20 million funding round last year, the firm said it would use the capital to bring Wall Street-grade trading strategies to everyday investors.

Theo Chief Investment Officer Iggy Ioppe told Decrypt that the company plans to short gold features on crypto-native ventures, as well, including Binance and decentralized exchange Hyperliquid. He estimated that the arrangement could deliver 10% annualized yields under favorable conditions.

Although companies like Theo are experimenting with assets like oil and real estate, Ioppe said the New York-based firm has remained focused on stalwarts. The company’s core product, thBIll, debuted last July as a tokenized money-market fund.

“We’re in a bear market for crypto now,” Ioppe said. “We’re starting out with risk-off assets, whether that’s T-bills or gold. These are things that you invest in when you’re not feeling bullish, so there is enormous demand now on-chain.”

Oppe noted that gold retailers like Mustafa have benefited from thGOLD because the token allows them to continue manufacturing goods without being fully exposed to gold prices.

“For them, it is hedging,” he said. “They can stick to their business of producing jewelry and selling it, and that makes their business much more predictable.”

Since the beginning of this month, gold prices have retreated from record highs of $5,300 per ounce. However, they’ve still soared around 67% over the past year, according to Yahoo Finance.

So far, the market for tokenized gold has been dominated by stablecoin issuers Tether and Paxos. On Monday, Tether Gold and and PAX Gold were valued around $2.75 billion and $2.5 billion, respectively, according to CoinGecko.

Within the context of decentralized finance, or DeFi, thUSD the token is set to be compatible with lending protocols like Morpho that support digital representations of real-world assets. Still, investors in Theo’s products need to register, providing personal information for a whitelist.

“You can access it from 200 countries,” he said. “Once the token is on-chain, then it’s permissionless in DeFi, which is our whole North Star.”