Real-world asset tokenization has changed the perception of digital assets, helping cryptocurrencies gain more legitimacy in the eyes of governments and financial institutions. While fiat-backed stablecoins are a classic example of real-world asset (RWA) tokenization, tokenized gold is also showing strong momentum as investors look to diversify and hedge against inflation and economic uncertainty.
The market capitalization of tokenized gold hit an all-time high (ATH) of $2.57 billion earlier this month, with much of the growth driven by the two largest tokens in this class–Tether’s XAUt and Paxos Gold’s PAXG. In early August, Tether minted 129,000 new XAUt tokens, boosting the value of its total supply by $437 million to a market cap of $1.3 billion.
Meanwhile, PAXG has benefited from more than $141.5 million in net inflows since June. The growth of these two assets demonstrates the growing hunger for more liquid digital assets backed by physical holdings of gold bullion.
Gold stands out as a prime example of the benefits of tokenization. By representing physical assets on the blockchain, it becomes much easier for investors to buy, sell, and store them, thereby increasing liquidity and accessibility. In addition, blockchain-based transactions increase transparency in the industry, boosting confidence in the underlying market.
DWF Labs Managing Partner Andrei Grachev said in an interview that the sudden surge in tokenized gold’s market cap underscores the benefits of tokenized gold. “The rise in value is not just a reaction to market volatility,” he said. “It’s a signal that investors are looking for digital assets that combine stability and transparency with real utility.”
Superiority of Tokenized Gold
Tokenized gold refers to digital tokens that live on the blockchain and represent physical gold, stored safely and securely in the real world. Each token corresponds to a specific unit of gold, usually measured in troy ounces. For instance, 1 XAUt is equivalent to a single troy ounce of gold, and each of the tokens issued by Tether are backed 1:1 by physical gold bullion that’s stored in secure vaults and regularly audited by independent bodies.
Because the tokens are backed 1:1, they act as a kind of digital certificate of gold ownership that can be redeemed for physical gold by the holder. They make it far easier for investors to trade gold without dealing with the logistics of transporting the asset or securely storing it somewhere. In this way, they transform traditionally illiquid gold into a liquid asset that supports fractional ownership, making it far more accessible.
Fractional ownership enables investors to make much smaller purchases of gold than was previously possible. Because tokens like XAUt and PAXG are divisible, investors can buy and sell small fractions of a gram, making the asset accessible to investors who don’t have the capital to acquire an ounce of physical gold. Tokenized gold also makes the asset easier to trade globally, without requiring physical transportation. An investor in Africa can purchase tokenized gold from someone in the U.S. via a peer-to-peer transaction in seconds, without having to use intermediaries to ship the asset half way across the world. This makes the asset especially appealing to anyone who lives in a country with strict capital controls.
Although investors don’t physically hold the gold themselves, the trusted nature of tokens such as XAUt and PAXG gives them increased confidence in the security of their assets. Moreover, they can store the tokens in self-custodial assets, meaning they don’t have to rely on any intermediaries, giving them greater control. Of course, the fact that transactions take place on the blockchain means that settlements are much cheaper. Tokenization also increases liquidity in the gold market, making it easy for investors to dispose of their assets quickly when necessary.
Real-World Adoption Soars
Since the start of the month, PAXG has overtaken XAUt to become the most valuable tokenized gold asset by market cap, soaring to $1.05 billion as of September 10. XAUt sits in second place with a market cap of $901.6 million, and followed by a number of much smaller, but rapidly growing gold-backed assets. For instance, Matrixdock Gold (XAUM) has reached a market cap of $45.8 million, with Comtech Gold (CGO) sitting at $16.5 million and GOLDAO just behind at $14.7 million.
Grachev said that many crypto investors initially viewed tokenized gold as an alternative, and arguably more stable alternative to traditional fiat-backed stablecoins. Their popularity stems from the fact that fiat historically loses value over time due to inflation, whereas gold and other precious metals tend to increase in value. This makes them a useful hedge against economic volatility, but that’s not the only benefit they provide.
For instance, tokenized gold is increasingly being integrated with leading decentralized finance (DeFi) platforms, enhancing its utility for investors. With protocols such as Aave Arc and Maple Finance, gold-backed cryptocurrencies can be used as collateral, enabling investors to borrow assets such as yield-bearing stablecoins or traditional cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH), without needing to liquidate their gold holdings. “These instruments are no longer just proxies for metal, but instead they are being used as collateral deposits, integrated within settlement workflows and tested in other DeFi use cases,” Grachev said.
With regard to settlements, there has been growing interest from central banks and other large financial institutions in the idea of using tokenized gold as an instrument of settlement for cross-border trades, and for hedging foreign reserves.
“The inflows we’re seeing today reflect both the macroeconomic uncertainty and the growing confidence in the technical reliability of on-chain assets,” Grachev said of tokenized gold’s appeal. “What sets it apart from ETFs is not just the simpler custody and faster settlement speed, but the programmability it provides. It’s opening the door to more efficient capital use across jurisdictions.”
Can It Be Trusted?
PAXG and XAUt have emerged as the undisputed leaders in the tokenized gold space, but they were not the first examples of gold-backed digital assets. The first to market was an asset known as the Digix Gold Token or DGX, which was also said to be backed 1:1 with physical gold deposits. However, DGX was undone by a lack of transparency and the fact that it operated outside of any regulatory frameworks. As a result, it was unable to sustain investor’s trust.
For gold-backed assets to establish trust, it’s necessary to have full transparency around their redemption terms, with clarity regarding when, where, and how it can be redeemed for physical gold. Investors should also look for assets with full transparency regarding their vaults. The gold bullion backing their assets must be stored securely and regularly audited by independent bodies to ensure confidence.
Other key tests include DeFi compatibility and regulatory oversight. If the asset can be used in DeFi protocols, exchanged on third-party decentralized marketplaces, and held in self-custody wallets, this dramatically increases its utility and appeal. Moreover, if the issuer is licensed and operates within the guidelines of a trusted financial authority, this means it’s subject to strict legal oversight.
Grachev believes that the next step on tokenized gold’s road to maturity is regulatory harmonization, and envisions the emergence of some kind of common framework in future. “Whether under MiCA in Europe or SFC guidelines in Asia, these assets are becoming an early test of how tokenized real-world value fits into compliant financial systems,” Grachev said.
More Precious for Investors
Digital gold has emerged as a major showcase for real-world asset tokenization, increasing dynamism and utility of precious metal investments and expanding their appeal.
These days, a number of forward-thinking financial institutions, including JPMorgan Chase, Standard Chartered, and HSBC, have begun evaluating tokenized gold for global settlements and other use cases. This also includes the collateralization of central bank digital currencies or CBDCs in emerging markets.
The growing momentum around tokenized gold shows that it’s much more than just a concept – it has proven its worth and grown its utility, and that’s why it’s fast becoming the favored way of owning and trading precious metals.
