Tokenised Commodities & Gold

Why Tokenise Gold?

Gold has been a store of value for 5,000 years, but owning physical gold is cumbersome — you need to buy it, store it securely, insure it, and find a buyer when you want to sell. Gold ETFs (like GLD) solved some of these problems but introduce counterparty risk and management fees. Tokenised gold offers a third option: a blockchain token backed by physical gold in a vault, transferable 24/7, with minimal fees and no storage logistics.

PAX Gold (PAXG)

PAX Gold (PAXG) is the most established tokenised gold product, launched by Paxos in 2019:

• Each PAXG token represents one fine troy ounce of gold stored in LBMA-approved vaults
• Custodian: Brink's — the world's largest vaulting company
• Vault locations: London (primary), with additional storage in New York
• ERC-20 on Ethereum; also available on Solana, Polygon and other chains
• Regulated by the New York Department of Financial Services (NYDFS)
• Physical gold is allocated — specific bars are assigned to each token holder
• Can be redeemed for physical gold (minimum 430 ounces = ~430 PAXG)
• Monthly attestations by third-party auditors verify gold reserves

PAXG is the gold standard (pun intended) for tokenised gold. Its NYDFS regulation and allocated gold model make it the most trusted option for institutional and retail investors alike.

Tether Gold (XAUT)

Tether Gold (XAUT) is the main competitor to PAXG, issued by Tether (the same company behind USDT):

• Each XAUT represents one troy ounce of gold in a Swiss vault
• Custodian: Swiss Gold Safe Ltd in Lugano, Switzerland
• ERC-20 on Ethereum; also available on Tron
• Gold is physically allocated and auditable by token serial number
• Physical redemption available (minimum 50 XAUT)
• Lower trading volume than PAXG but competitive fees

Tether Gold offers the advantage of Swiss vaulting — politically neutral and historically secure. However, Tether's broader regulatory controversies have led some investors to prefer PAXG despite XAUT's competitive structure.

Backed Gold (bGold)

Backed Finance is a Swiss-licensed tokenisation platform that issues "bTokens" — ERC-20 tokens that track the price of real-world assets:

• bGold tracks the price of physical gold via a gold ETF wrapper
• Issued under Swiss law as a security token
• Available on Ethereum, Polygon and other chains
• Backed also issues tokens tracking equities (bCSPX for S&P 500, bAAPL for Apple)
• Subject to Swiss FINMA regulation and periodic audits

Other Tokenised Commodities

While gold dominates tokenised commodities, other products are emerging:

• Digitised silver — Kinesis Money issues KAG tokens backed by physical silver
• Tokenised oil — several projects have attempted tokenised crude oil exposure, though regulatory complexity has limited adoption
• Tokenised carbon credits — Toucan Protocol and KlimaDAO tokenise voluntary carbon credits on-chain, enabling transparent trading and retirement
• Tokenised agricultural commodities — emerging projects in coffee, cocoa and grain tokenisation, primarily for supply chain financing

PAXG vs XAUT vs GLD: Comparison

• Underlying: PAXG and XAUT hold physical gold; GLD holds gold via a trust structure
• Fees: PAXG charges 0.02% transaction fee; XAUT charges no fee but has a 25 basis point redemption fee; GLD charges 0.40% annual expense ratio
• Redemption: PAXG and XAUT can be redeemed for physical gold (high minimums); GLD only allows institutional creation/redemption in-kind
• Trading hours: PAXG and XAUT trade 24/7; GLD trades during market hours only
• Regulation: PAXG is NYDFS-regulated; XAUT is less regulated; GLD is SEC-regulated
• DeFi integration: PAXG and XAUT can be used as DeFi collateral; GLD cannot

Using Tokenised Gold in DeFi

Tokenised gold's DeFi composability is a key advantage over traditional gold products:

• Supply PAXG as collateral on Aave to borrow stablecoins
• Earn yield by providing PAXG/USDC liquidity on Uniswap
• Use tokenised gold as collateral for mortgages on real estate platforms
• Hedge crypto exposure by holding gold tokens during market volatility

Risks of Tokenised Gold

• Custody risk — if the vault is compromised or the custodian fails, token holders could lose their claim
• Smart contract risk — a bug in the token contract could freeze or inflate supply
• Redemption risk — physical redemption requires high minimums and logistical coordination
• Regulatory risk — regulations around tokenised commodities are evolving; what's legal today may face restrictions tomorrow
• Premium/discount risk — token prices can trade at a premium or discount to spot gold during periods of market stress

The Bottom Line

Tokenised gold is one of the most mature and practical RWA categories. PAX Gold and Tether Gold offer investors a way to hold gold with the convenience and composability of a crypto token. For UK investors, tokenised gold avoids VAT on investment gold (which applies to physical purchases) and can be held in a self-custody wallet. The main risks are custody and smart contract risk — both manageable with due diligence.

Learn More

• Tokenised Treasury Bills — yield-bearing RWA tokens
• How RWA Tokenisation Works — the technology
• Risks of RWA Tokenisation — comprehensive risk guide

Nothing on this site is financial advice. All content is for educational purposes only. Always do your own research and consult a qualified financial adviser before making investment decisions. Back to all guides