Gold has been a store of value for thousands of years. Tokenized gold brings it on-chain — making it tradeable 24/7, composable with DeFi, and transferable without physical delivery. Here's how the two main products work.
The Two Major Tokenized Gold Products
PAXG (Pax Gold by Paxos)
What it is: Each PAXG token represents 1 troy ounce of physical gold held in LBMA-accredited vaults in London (Brink's vault).
The backing: Paxos (a regulated US trust company) purchases physical gold bars and holds them in allocated storage. Each token maps to a specific bar with a serial number, weight, and assay certificate.
Verification: PAXG token holders can look up the specific bar serial number backing their tokens via the Paxos website. Monthly third-party audits (Withum) verify reserves.
Blockchain: Ethereum ERC-20. Also available on Solana.
Redemption: PAXG holders can redeem for physical gold (minimum 430 oz = ~$1M at current prices), or convert to USD through Paxos or exchanges. Sub-ounce redemptions receive cash settlement.
Fees: 0.02% creation/redemption fee. Storage and custody costs included in the fee structure (unlike physical gold where you pay separately for storage).
XAUt (Tether Gold)
What it is: Each XAUt represents 1 troy ounce of physical gold on Good Delivery gold bars held in Switzerland.
The backing: Tether Limited holds gold bars in a Swiss vault. Less audit transparency than PAXG — Tether provides quarterly attestations rather than monthly audits.
Blockchain: Ethereum ERC-20 and Tron.
Redemption: Physical gold delivery available in Switzerland for qualified holders. Cash redemption through Tether.
Fees: 0.25% transfer fee on XAUt transactions (higher than PAXG). 25 XAUt minimum for physical redemption.
PAXG vs. XAUt vs. Gold ETF vs. Physical Gold
| | PAXG | XAUt | GLD ETF | Physical Gold | |--|--|--|--|--| | Backing | Allocated London vault | Allocated Swiss vault | Gold trust | Physical in hand | | Audit transparency | Monthly (Withum) | Quarterly (Tether) | Annual SEC filing | N/A | | 24/7 trading | Yes | Yes | No (market hours) | No | | DeFi composable | Yes | Yes | No | No | | Storage fee | Included in spread | Transfer fee | 0.40%/year (expense ratio) | Self-storage cost | | Physical redemption | Min ~430 oz | Min 25 oz | No | Already physical | | Counterparty risk | Paxos | Tether | SPDR fund | None | | Liquidity | Moderate | Lower | Very high | Low |
Why Use Tokenized Gold?
DeFi collateral: PAXG is accepted as collateral on Aave and other lending protocols. Borrow USDC against your gold without selling it. No equivalent exists for physical gold or ETFs.
24/7 trading: Gold markets have weekend gaps. PAXG/XAUt trade on DEXs around the clock.
Fractional ownership: Buy 0.001 oz of gold for ~$2. Physical gold bars start at 1 oz (~$2,000+). ETFs allow fractional but require a brokerage.
No storage anxiety: Physical gold requires a safe, insurance, and transport risk. Tokenized gold's "storage" is a vault in London/Switzerland.
Portfolio diversification within DeFi: Add gold exposure to a DeFi portfolio without leaving the on-chain ecosystem.
Risks
Counterparty risk: You trust Paxos or Tether to actually hold the gold they claim. This is the primary risk. Paxos is better audited; Tether has historical credibility issues.
Smart contract risk: A bug in the PAXG contract could affect token holders, though the underlying gold would still exist.
Regulatory risk: Paxos is a regulated US trust company subject to NYDFS oversight. Regulatory action against Paxos could affect PAXG.
Liquidity: PAXG/XAUt liquidity on DEXs is thin compared to spot gold or GLD ETF. Large trades will have meaningful slippage.
Not for physical gold believers: If your gold thesis requires the metal in your hand (no counterparty, no digital systems), tokenized gold defeats the purpose.
How to Get PAXG
- Buy directly from Paxos (paxos.com) with US bank transfer — regulated, straightforward
- Buy on Coinbase, Kraken, or Gemini (all list PAXG)
- Buy on Uniswap or Curve (PAXG/USDC pool exists) — no KYC, but watch slippage
- Use as DeFi collateral once held in a self-custody wallet