Gold has long stood as a cornerstone of global finance, valued for its stability and role as a store of value, particularly during economic uncertainty.
Gold has long stood as a cornerstone of global finance, valued for its stability and role as a store of value, particularly during economic uncertainty. However, investing in physical gold has traditionally come with challenges related to accessibility, storage, and ease of trading. The advent of blockchain technology has paved the way for a modern solution: tokenized gold.
Tokenized gold represents physical gold that has been digitised and minted onto a blockchain. These digital tokens are designed to be backed directly by an equivalent amount of real, physical gold held securely in custody by the entity that issues the tokens. This innovation aims to blend the time-tested appeal of gold with the efficiency, transparency, and accessibility offered by blockchain technology.
Over the past five years, this category within the digital asset space has grown significantly in relevance. As of early May 2025, data from CoinGecko indicated the total market capitalisation for tokenized gold had surpassed $2 billion, positioning it as a notable trend within the crypto and digital asset markets.
Key Takeaways:
Gold tokenisation converts physical gold into digital tokens on a blockchain, with the real gold held in custody by the issuer serving as backing.
Typically, token holders have the ability to redeem their digital tokens for physical gold, subject to the specific terms and conditions set by the issuer.
Tokenising gold enhances its accessibility by facilitating fractional ownership, streamlining trading processes, and enabling its integration into decentralized finance (DeFi) applications.
Prominent issuers in the tokenized gold sector include Tether (with their XAUT token) and Paxos (with their PAXG token), which can be managed using standard crypto wallets and traded on various digital asset exchanges.
Understanding Tokenized Gold
At its core, tokenized gold allows investors to hold a digital representation of physical gold directly within their cryptocurrency wallets. Each token is typically pegged to a specific, verifiable weight of physical gold held in secure vaults by the issuing institution. Common units of pegging include:
Troy Ounce: A standard unit for precious metals, equal to 31.1 grams. Tokens like Tether Gold’s XAUT and Paxos Gold’s PAXG are pegged to the value of one troy ounce.
Gram: A more common weight unit. Tokens such as Kinesis Gold’s KAU and VeraOne’s VRO are pegged to the value of one gram.
A significant advantage of tokenized gold is its divisibility. Because tokens exist on a blockchain, they can be bought and sold in minute fractions. This capability effectively removes traditional barriers to entry, such as minimum purchase requirements often associated with physical gold or certain investment funds, allowing investors to acquire gold exposure based on their individual investment capacity, potentially down to fractions of a gram or even smaller token denominations.
The process of tokenising gold involves several key components: the physical gold reserves, smart contract technology governing the digital tokens, and third-party verification to ensure backing accuracy. The typical process unfolds as follows:
Gold Acquisition and Storage: An issuing institution first procures physical gold bullion, which is then stored in highly secure, accredited vaults, often in multiple trusted jurisdictions.
Token Minting: Using smart contracts - self-executing code on a blockchain - the issuer creates and issues digital tokens. The number of tokens minted is equivalent to the amount of physical gold acquired and stored. These tokens commonly follow established fungible token standards like ERC-20 on the Ethereum blockchain. Some may also be issued on other networks, such as the TRC-20 standard on the Tron Network (as is the case with XAUT).
1:1 Backing and Pegging: A fundamental principle is the 1:1 backing, where each digital token is directly correlated to a specific, verifiable amount of the physical gold held in custody (e.g., 1 token = 1 troy ounce or 1 gram).
Transparency and Attestation: To build and maintain trust, reputable issuers regularly publish audit reports or attestations from independent third parties (like BDO or KPMG, as cited by some issuers) that verify the amount of physical gold held in their vaults accurately corresponds to the circulating supply of tokens on the blockchain. Information and verification tools are typically made publicly available on the issuer’s website.
Distribution and Trading: Once minted, tokens are made available for purchase directly from the issuer or listed on various digital asset trading platforms, including centralised exchanges (CEX) and decentralised exchanges (DEX). This enables round-the-clock trading globally against various assets like fiat currencies, stablecoins, or other cryptocurrencies, unlike traditional gold markets with fixed trading hours.
Redemption and Burning:
Physical Gold: Holders of tokenized gold can typically redeem their tokens for physical gold bars. This process usually requires meeting a minimum threshold (which can be substantial, e.g., 430 troy ounces for some tokens like PAXG and XAUT), and involves additional fees and logistical arrangements for delivery or collection, often limited to specific geographical regions.
Cash/Unallocated Gold: Some issuers, such as Paxos, provide options for redeeming smaller amounts of tokens for cash (e.g., USD) or entitlements to unallocated gold in a shared reserve pool. These options are also subject to specific fees and prerequisites.
Token Burning: When tokens are redeemed, whether for physical gold or cash/unallocated entitlements, the corresponding tokens are “burned” (permanently removed from circulation) on the blockchain. This action is crucial for maintaining the integrity of the 1:1 physical gold backing for the remaining circulating token supply.
Benefits of Gold Tokenization
Tokenized gold offers several advantages that enhance the accessibility and utility of gold investment for both retail and institutional investors:
Accessibility and Fractionalization: By existing on a blockchain, gold tokens can be divided into tiny units. This lowers the barrier to entry for gold investment significantly, allowing individuals to participate with modest capital. For example, some platforms like Binance reportedly support purchasing PAXG in denominations as low as 0.0000031, equivalent to roughly $0.01.
Improved Liquidity and Efficiency: Trading tokenized gold on global crypto markets is possible 24/7, offering greater liquidity and potentially faster settlement times compared to traditional physical gold markets or even gold ETFs bound by market hours. This accessibility has contributed to billions of dollars in value flowing into the crypto market via tokenized gold assets.
Transparency: The immutable nature of blockchain ledgers provides a permanent, publicly verifiable record of every token transaction. Combined with regular, verifiable third-party audits of the physical gold reserves backing the tokens, this offers a high level of transparency regarding the existence and movement of the underlying asset and its digital representation. Smart contract code itself can also be audited for security, as noted for PAXG by CertiK.
DeFi Integration: Tokenized gold assets can be integrated into decentralised finance protocols. This means holders can supply their tokens to liquidity pools to earn trading fees or use them as collateral within DeFi lending platforms where supported, unlocking opportunities for yield generation that are not available with traditional physical gold holdings.
Cost Efficiency and Storage: Tokenized gold issuers typically do not charge custody fees for holding the tokens. Furthermore, users can easily swap fractions of tokenized gold for other digital assets or fiat currencies through exchanges. Blockchain transaction fees, regardless of the network used, are generally significantly lower than the costs and complexities associated with processing transactions involving physical gold (e.g., assaying, transfer fees, storage). Storing tokenized gold in secure digital wallets (hot or cold storage) protected by standard security measures is also considerably less expensive than the high costs associated with storing physical gold in secure vaults. This cost efficiency and ease of digital transfer also present advantages for institutions looking to diversify into gold.
Challenges and Risks
Despite its benefits, tokenized gold is not without its challenges and risks, which potential investors should carefully consider:
Regulatory Uncertainty: The regulatory environment for cryptocurrencies, including tokenized assets like gold, is still evolving globally. Given gold’s status as a significant financial asset, tokenized gold may attract particular attention from regulatory bodies. Changes in regulations could impact issuance, trading, taxation, and the requirements placed on issuers. Jurisdictional differences in regulatory approaches can also create complexity for a globally traded digital asset. Depending on how regulations develop, tokenized gold might eventually be treated similarly to more mainstream investment instruments like ETFs.
Market Volatility: While tokenized gold aims to track the price of physical gold, its trading environment within the crypto market can introduce additional volatility. Market sentiment, overall crypto market liquidity, and platform-specific trading dynamics can sometimes lead to premiums or discounts on the token price compared to the real-time spot price of physical gold (as observed around early May 2025, where XAUT and PAXG traded at slight variations compared to the Bloomberg spot gold price). Additionally, engaging in DeFi activities like providing liquidity with tokenized gold carries risks such as impermanent loss.
Custodial Concerns: A fundamental aspect of tokenized gold relies on the issuing institution’s responsibility to securely hold the physical gold and accurately maintain the 1:1 backing. This introduces a degree of centralisation and custodial risk. Potential issues include the risk of issuer mismanagement, insolvency, or even vulnerabilities within the smart contracts governing the tokens. Investors are advised to conduct thorough due diligence on issuers, researching their regulatory compliance, the security audits of their smart contracts (like the CertiK audit for PAXG), and the frequency and transparency of their third-party attestations of physical gold reserves (like monthly attestations by KPMG for Paxos Gold).
Where to Access Tokenized Gold
While several entities issue tokenized gold, the two largest by market capitalisation as of early May 2025 were Tether Gold (XAUT) and Paxos Gold (PAXG). These tokens are widely available across numerous digital asset trading platforms:
Tether Gold (XAUT): Issued by Tether, the company behind the USDT stablecoin, XAUT is pegged to one fine troy ounce of physical gold held in a Swiss vault. Each token is highly fractionalizable, down to 0.000001 XAUT. As of March 31, 2025, audit reports by BDO indicated Tether Gold’s market cap exceeded $806 million, corresponding to the value of gold under management. XAUT tokens are minted on both the Ethereum (ERC-20) and Tron (TRC-20) blockchains. It is the largest tokenized gold token by market cap and is traded on major centralised exchanges such as Binance, Bybit, OKX, Bitget, and MEXC, as well as decentralised exchanges on Ethereum like Uniswap.
PAX Gold (PAXG): Launched by Paxos in September 2019, PAXG is regulated by the New York State Department of Financial Services (NYDFS). Paxos’ gold reserves for PAXG are audited monthly by KPMG. Each PAXG token represents one fine troy ounce of London Good Delivery gold and is issued as an ERC-20 token on the Ethereum blockchain. PAXG tokens are fractionalizable up to 18 decimal places, offering high accessibility, although a minimum purchase amount of 0.01 PAXG may apply when buying directly from Paxos. As of early May 2025, over 237,000 PAXG tokens had been issued, with a reported market cap exceeding $778 million, corresponding to the firm’s reported assets under management. PAXG benefits from wide acceptance across top centralised exchanges including Binance, Crypto.com, Gemini US, Kraken, and MEXC, and is also available on decentralised platforms like Uniswap on Ethereum.
Final Thoughts
As of early May 2025, the total market capitalisation for tokenized gold stood at over $2 billion according to CoinGecko data, indicating growing interest from both retail and institutional investors. Since gaining traction in early 2024, tokenized gold has steadily grown by combining the traditional appeal of gold as a safe-haven asset with the inherent transparency, efficiency, and accessibility benefits of blockchain technology.
The ability to acquire fractional ownership and the potential to utilise these assets within DeFi protocols to generate yield are compelling advantages. However, potential investors must exercise due diligence regarding issuer credentials, regulatory standing, and the transparency of reserve audits. Understanding the specific risks associated with tokenized assets, such as market volatility compared to spot gold prices and risks like impermanent loss in DeFi, is also crucial.
