Demand for tokenized gold has soared in 2024, with spot trading volume reaching $90.7 billion in the first quarter as gold prices climbed to historic highs, according to research from RedStone, a decentralized oracle protocol that supplies accurate data for blockchain-based applications.
Physical gold rallies while DeFi usage stays limited
As gold futures surpassed $5,600 per troy ounce, investors increasingly turned to blockchain-based gold tokens as a means of tracking the precious metal. However, the data shows that just $63 million worth of the two primary gold-backed tokens, Tether Gold (XAUT) and PAX Gold (PAXG), is currently deployed as collateral on the leading DeFi platforms Aave v3 and Morpho. This figure amounts to only 1.5% of the combined token market cap of $4.2 billion.
Despite the popularity of tokenized gold for trading, these assets have not yet found meaningful use within the decentralized finance sector. Analysts attribute this to a range of infrastructure challenges and a lack of incentive for DeFi participants to use gold tokens over traditional crypto assets.
| Gold Token | Market Cap | Collateral in DeFi |
|---|---|---|
| Tether Gold (XAUT) | Part of $4.2 billion (combined) | $63 million total (with PAXG) |
| PAX Gold (PAXG) | Part of $4.2 billion (combined) | $63 million total (with XAUT) |
Market test amid volatility
Earlier this year, tokenized gold assets underwent a significant market test. On March 23, Aave processed its largest cluster of XAUT liquidations during a sharp gold price downturn, yet the lending protocol continued operating smoothly. This demonstrated that tokenized gold can function reliably as collateral during periods of market stress, RedStone’s report noted.
The liquidation event followed a 10% weekly decline in gold prices, marking the metal’s worst week in over forty years. Greg Shearer, precious metals strategist at JPMorgan, labeled the episode an “extremely brutal flush.” RedStone’s data confirmed that liquidations across Morpho and Aave peaked in late March as volatility spiked.
After gold plummeted 10% in just one week, Aave managed its largest-ever XAUT liquidation cluster without disruptions, highlighting the asset’s reliability as DeFi collateral even under extreme conditions.
Since its highs in January, gold futures have fallen more than 26%, pressured by expectations of sustained higher US interest rates that have weighed on demand for non-yielding assets like precious metals.
Growth in tokenized RWA and future challenges
Tokenized gold is part of the broader real-world asset (RWA) market, which includes not only precious metals but also private credit, US Treasurys, and equities. According to Token Terminal, the total value of tokenized RWAs exceeded $43 billion in June, reflecting rapid growth in this blockchain sector.
Despite the expanding market, limited DeFi adoption of gold tokens signals that key infrastructure and incentives are still lacking. The challenge for the sector may now be driving greater real-world utility and integration with decentralized finance protocols.
Centralized crypto exchanges have responded by increasing support for tokenized assets. CoinGecko, a cryptocurrency analytics provider, cited rapid expansion of the so-called “crypto TradFi” market, which had grown to $6.6 billion by June as platforms seek to connect traditional finance with digital assets.
Mini dictionary: RedStone is a decentralized blockchain oracle protocol designed to deliver fast, reliable, and cost-effective data feeds for DeFi applications and smart contracts.
In the wider context, the tokenized commodities market has crossed the $6 billion mark, fueled largely by gold’s substantial rally.
Analysts emphasized that while tokenized gold assets have shown operational resilience, the next major barrier will be achieving mainstream usage within DeFi, as only a small fraction of existing supply is actively employed in lending and other decentralized finance activities.
