While gold is undoubtedly the oldest store of value in recorded human history, it is also one of the most cumbersome assets to own, especially for digital natives. This bottleneck exists beca
While gold is undoubtedly the oldest store of value in recorded human history, it is also one of the most cumbersome assets to own, especially for digital natives.
This bottleneck exists because you cannot store meaningful quantities of gold at home safely, neither can you quickly transfer gold bars across borders, nor use physical gold as collateral easily.
Tokenized gold, which solves all three problems simultaneously, has seen its market valuation surpass $5.5 Billion to become the third-largest distributed RWAs category after private credit and treasuries.
In this article, I analyze the underlying mechanism of tokenized gold, the differences between major tokenized gold products, and the areas where tokenized gold genuinely beats traditional gold ETFs.
Let's dive in:
A standard gold bar comprises about 400 troy ounces of LBMA-approved bullion, and at current gold prices of $4,500 per ounce, that's approximately $1.8 million per bar.
Due to this astronomical cost, most investors cannot afford to buy a single bar of gold, nor can they store it personally without exposing themselves to significant ambush risk.
Entities offering tokenized gold products solve this problem by getting a regulated issuer to purchase and allocate real gold bars in an insured vault on their behalf.
After this, they issue on-chain tokens that represent the gold bars, with each token representing one troy ounce of allocated gold stored in the vault.
These tokens are transferable 24 hours a day, seven days a week, and the gold backing them cannot be used for any purpose other than sitting in the vault.
While the innovation behind this mechanism makes tokenized gold very attractive to different categories of investors, it also underscores the importance of the structural differences between various products.
The major factors that differentiate tokenized gold products from one another is how their issuers verify them, the protections they offer investors, and the usefulness of the tokens beyond serving as a passive store of value.
PAXG is issued by the Paxos Trust Company, which is a New York-regulated financial institution operating under a New York Department of Financial Services (NYDFS) trust company license.
Every PAXG token issued by Paxos represents one troy ounce of LBMA-approved gold held in Brink's London vaults.
The circulating supply of PAXG is approximately 470,000 tokens, which puts its market cap around $2.1 billion at current gold prices.
I find the Paxos attestation model to be the most credible transparency mechanism in the tokenized gold market.
Every month, an independent accountant publishes a report verifying that the total PAXG token supply matches an equivalent quantity of allocated gold in Brink's custody.
For a product that depends entirely on trust in its backing, the distinction between issuer disclosure and independent attestation is the difference between a claim and a verification.
The bankruptcy-remoteness protection also matters significantly and is often understated in the mainstream coverage of PAXG.
If Paxos became insolvent, PAXG holders have a direct legal claim to the allocated gold, as it is segregated from Paxos' own balance sheet.
XAUT is issued by TG Commodities Limited, which is a Tether subsidiary registered in the British Virgin Islands (BVI), and each token represents one troy ounce of LBMA-approved gold held in Swiss private vaults.
XAUT has a larger product than PAXG, with Assets Under Management (AUM) of approximately $3.1 billion, and it consistently leads tokenized gold in daily trading volume.
XAUT regularly generates over $300 million in 24-hour trading volume, and on April 18th, it generated $868 million in a single day on Binance alone, which was more than double Solana's volume that same day.
I want to be direct about the XAUT trade-off because its custody structure is less transparent than PAXG's in two specific ways.
First, XAUT gold is held in Swiss private vaults through a custodial arrangement rather than in a major named institutional custodian like Brink's, and Tether provides periodic reserve disclosures rather than monthly independent attestations.
Less frequent verification from a less established vault arrangement is a meaningful difference from the PAXG model, particularly for investors whose primary concern is what happens in a stress scenario.
The BVI regulatory registration also compounds the transparency gap, as an NYDFS trust company license implies that Paxos operates under a US regulator with formal investor protection mechanisms.
A BVI registration means that TG Commodities operates under a jurisdiction that provides significantly lighter regulatory oversight.
With XAUT having a higher trading volume and AUM than PAXG, while also having lower regulatory protection and less rigorous custody verification, most investors in XAUT are taking on these trade-offs without fully evaluating them.
Many people who want to invest in tokenized gold products actively compare them to Gold ETFs like SPDR Gold Shares or iShares Physical Gold.
Let's compare these two distinct categories of Gold products to see where each one shines:
For tokenized gold, it wins on ACCESS and UTILITY.
A traditional gold ETF requires a brokerage account, trades only during exchange hours, and has a minimum investment requirement equal to at least one share.
Meanwhile, PAXG and XAUT can be transferred 24 hours a day, seven days a week, with no minimum investment requirement beyond a fraction of a token.
More importantly, tokenized gold can be used as DeFi collateral in a way that a traditional ETF share cannot.
An investor who wants to hold gold exposure while putting it to work as productive collateral in a lending protocol has an option with tokenized gold that simply does not exist in the traditional market.
For traditional ETFs, they win on REGULATORY CERTAINTY and INSTITUTIONAL ROBUSTNESS.
SPDR Gold Shares are listed on the NYSE, regulated by the SEC, backed by gold held in HSBC Bank, with State Street as trustee, and has been operating continuously for over two decades.
The institutional infrastructure has been tested through multiple market downturns, including 2008, 2020, and 2022, and the bankruptcy-remoteness protections have also been tested in court.
For investors who need that level of established track record, tokenized gold products are genuinely newer and less tested.
For fees, the comparison is closer than most people expect.
SPDR charges 0.40% annually, and iShares Physical Gold charges approximately 0.09% to 0.25% depending on the specific product and market.
Meanwhile, PAXG charges 0.02% on token creation and destruction, with no ongoing management fee, while XAUT charges 0.025% on token creation.
At these fee levels, tokenized gold is competitive with low-cost institutional ETFs and is meaningfully cheaper than the flagship retail products.
What you need to evaluate when choosing between PAXG and XAUT is whose custody arrangement you trust more, how frequently you need independent verification, and what level of regulatory protection you require if something goes wrong.
Based on this framework, PAXG is the more robustly structured product, while XAUT is the more liquid and accessible one.
While neither one is the wrong choice, I find it difficult to justify holding XAUT, specifically because it has higher AUM and trading volume, both of which are advantages that come at the cost of weaker custody verification and lighter regulatory oversight.
For investors who want neither DeFi utility nor on-chain operational requirements, a traditional ETF with decades of track record remains the most straightforward option.
