What actually changes when a pool's quote asset is gold instead of ETH
Something I've been chewing on: we talk about tokens being volatile, but half of what shows up on a chart is the quote asset moving, not the token.
If a pool is TOKEN/ETH, the price is a ratio. ETH drops 20% and your token's chart goes up 25% having done nothing. Every holder is running an unhedged short against the quote asset whether they meant to or not. Most people I talk to are aware of this in the abstract and have never thought about changing it, because until v4 there was no cheap way to.
So I tried pairing against PAXG — gold-backed, one token per troy ounce — and denominating the fees in it too. What I expected to learn was whether the pricing made sense. What I actually learned was more about liquidity:
It works mechanically and fails practically, for a boring reason. The pool prices fine. But PAXG is scarce on the chain I deployed to, so using the pool means bridging PAXG in first, and that friction is currently larger than any appeal the gold denominator has. My own pool has a few hundred dollars in it and no volume to speak of, while the ETH pair on the same token does real numbers.
That's the honest result and I think it's the interesting one: quote-asset choice is downstream of quote-asset liquidity, and no amount of being right about the denominator fixes that. It's the same reason nearly everything is quoted in ETH or USDC — not because those are conceptually correct, but because they're there.
Two things I'd genuinely like opinions on:
Is there a chain where commodity-backed quote assets have enough native liquidity for this to be more than a thought experiment? Gold-backed tokens have real market cap but it's concentrated in a couple of places.
A pool quoted in PAXG is quoted in PAXG, not in gold. If PAXG trades at a premium or discount to spot, the chart doesn't show it and the arbitrage bound is against PAXG's price rather than the metal's. Is that a real problem in practice or just a footnote?
Disclosure so it's not buried: I wrote the hook, I hold the token I tested it on, and the template takes a fee share — so I have an interest in people using it. Judge the argument, not me. It's unaudited and I'm not linking it here; happy to share in comments if anyone wants to look at the code.