Key facts
- Tokenized gold spot trading volume hit $90.7 billion in the first quarter.
- Less than 2% of tokenized gold, approximately $63 million, is used as collateral in DeFi.
- Tokenized gold, including XAUT and PAXG, has a combined market capitalization of $4.2 billion.
- DeFi platforms like Aave and Morpho successfully processed tokenized gold liquidations during a market downturn.
- Gold futures have fallen over 26% since January due to rising US interest rate expectations.
- The broader tokenized real-world asset market has grown to over $43 billion.
Demand for tokenized gold has surged this year, coinciding with record highs in physical gold prices. However, a new report by RedStone indicates that a significant adoption gap exists, with very little of this tokenized asset being utilized within decentralized finance (DeFi) protocols.
In the first quarter, tokenized gold spot trading volume reached $90.7 billion, driven by a rally in gold futures above $5,600 per troy ounce. Despite this high trading volume, only about $63 million worth of Tether Gold (XAUT) and PAX Gold (PAXG) is currently being used as collateral on platforms like Aave v3 and Morpho. This figure represents a mere 1.5% of the tokens' combined $4.2 billion market capitalization.
Nevertheless, tokenized gold has already demonstrated its resilience as DeFi collateral. On March 23, Aave successfully processed its largest cluster of XAUT liquidations without disruption during a sharp sell-off in gold prices. This event occurred after gold experienced a 10% drop in a single week, its worst performance in over four decades, which JPMorgan strategist Greg Shearer described as an "extremely brutal flush."
Gold futures have since declined more than 26% from their January peak, largely due to expectations of higher U.S. interest rates diminishing demand for non-yielding assets. RedStone's findings suggest that while tokenized gold has proven reliable under market stress, its integration into DeFi lending protocols remains limited. This highlights an infrastructure challenge for the scaling of tokenized real-world assets (RWA), a market that also includes private credit and U.S. Treasurys and has surpassed $43 billion in value.
Meanwhile, centralized crypto exchanges are actively embracing tokenized assets, aiming to bridge traditional finance with digital assets, contributing to an emerging "crypto TradFi" market valued at $6.6 billion as of June.