Tether, a prominent cryptocurrency company, is set to introduce a groundbreaking digital currency called Alloy (aUSDT). Unlike traditional cryptocurrencies, Alloy will be backed by physical gold, ensuring its stability, and pegged to the value of the US dollar.

This innovative stablecoin will be minted on the Alloy by Tether platform, marking a significant advancement in Tether’s offerings.

What makes Alloy unique is that it will be overcollateralized by Tether’s XAUT, a token backed by physical gold but still maintaining its peg to the US dollar. This essentially means that Alloy functions as a synthetic dollar, designed to replicate the value and utility of the USD without being directly tied to it.

To create a synthetic dollar, users can deposit XUSDT through a smart contract and price oracles. This process enables users to engage in transactions using aUSDT while maintaining ownership of their gold-backed Tether asset.

This mechanism provides a convenient way for users to utilize their assets in different forms while preserving the value and security of their original holdings.

Tether’s aUSDT is not the first synthetic dollar. In August 2022, Galoy introduced Stablesats, a Bitcoin-based synthetic dollar operating on the Lightning Network. However, synthetic dollars gained significant recognition when startup Ethena Labs unveiled USDe, an Ethereum-backed, USD-pegged synthetic dollar, in February.

Initially met with doubt and hesitation, this launch eventually piqued the interest of the crypto community.

In June, Asymmetry unveiled a new take on the concept by introducing an algorithmically balanced synthetic dollar, further adding to the evolving trend.