Blending the yellow metal’s reliability with the benefits of blockchain could offer investors a best-of-both-worlds opportunity.
Gold’s ongoing 2025 rally has sent it to record highs of over $3,030 per ounce. That’s drawing attention to gold-backed tokens — a niche class of cryptocurrencies that’s quickly growing in stature.
The total market capitalization of gold-backed cryptocurrencies surged from about $12.85 million in February 2020 to over $1.51 billion in March 2025. Driving the growth is TradFi’s steady embrace of digital assets and demand for diversification by an increasingly savvy group of crypto investors.
Will gold-backed tokens soon be a staple in crypto investment portfolios? The potential benefits are persuasive but challenges to adoption remain — not least their limited utility in decentralized finance (DeFi). But that could be about to change.
Between January 2020 and March 2025, total market cap of gold-backed cryptocurrencies exploded from $12.85 million to over $1.5 billionCrypto investors are turning to gold-backed tokens as a safe-haven assetInvestors use tokenized products to gain instant exposure to gold during risk events — often at the weekendLimited DeFi use cases, on-chain liquidity constraints, transparency concerns, and regulatory risks could hinder adoption
Gold-backed cryptocurrencies are blockchain-based tokens redeemable for a specific measure of gold, typically 1 token for 1 troy ounce (31.3g) of gold.They differ from mainstream digital assets like Bitcoin in that they are less subject to volatility, while their divisibility, transportability, and interoperability give them advantages over paper and physical gold.
Gold-backed cryptocurrencies offer a unique blend of stability and innovation by bridging the gap between gold — the original safe haven –and the dynamic world of crypto and blockchain. They offer investors an alternative inflation hedge and a shield from market volatility.
However, their integration into the broader crypto ecosystem remains a work in progress, with three core challenges yet to be overcome: regulatory uncertainties, liquidity constraints, and limited DeFi use cases.
Crypto purists often argue that Bitcoin makes holding gold unnecessary, as BTC is a kind of “digital gold,” sharing similarities with the precious metal such as capped supply and decentralized control. In unsettled times, however, gold’s ancient trading history, global acceptability, and limited supply have only solidified its reputation as a highly-trusted asset.
Bitcoin’s reliability as an inflation hedge remains a subject of debate. Gold, on the other hand, has consistently proven its status as a safe-haven asset during times of war, high inflation, monetary policy risks, and other economic uncertainties.
Since Donald Trump assumed office in January 2025, the market trajectories of gold and Bitcoin have diverged. Between January 20 and February 7, 2025, risk assets saw a sharp correction as the risk of a global tariff war stoked investor fear about rising inflation and slowing economic growth.
Bitcoin prices have fallen from their all-time high of $109,356 on January 20, 2025, to around $85,894 on March 20. During this period, the broader cryptocurrency market lost roughly $500 billion in market capitalization.
In contrast, demand for safe-haven assets has driven gold prices to multiple record highs since President Trump took office. The precious metal has surged as much as 6.6%, rising from $2,700 per ounce to a recent peak of $3,030 per ounce.
A recent report from rwa.xyz notes that gold and Bitcoin remain “fundamentally different” assets:
Prevailing narratives that call Bitcoin “digital gold” overlook the unique qualities of each asset. Investing into gold is exposure to gold’s longstanding use case as a status symbol, inflation-hedge, and store of value. Investing into Bitcoin is exposure to a new technology, characterized by decentralized consensus, near-instant settlement, and arbitrary, programmable transactions.”
For crypto investors, gold-backed tokens can offer the best of both worlds, combining gold’s low-risk, safe-haven properties with blockchain advantages like global accessibility, instant settlement, low fees, and 24/7 trading.
Unsurprisingly, gold-collateralized tokens like Tether’s XAUT and Paxos’ PAXG have surged in popularity in 2025 as investors seek ways to protect their portfolios against global uncertainties.
In its report, rwa.xyz noted that investors are taking advantage of 24/7 crypto markets and tokenized products to gain instant exposure to gold during risk events, particularly on weekends (when traditional markets are closed).
However, trading data suggests that investors tend to return to traditional markets once they reopen. The firm cautions investors that the premium for XAUT and PAXG ‘almost always retreats once traditional markets reopen after the weekend’. Analyzing the volume data for tokenized gold products across crypto exchanges, rwa.xyz says volumes tend to spike according to Saturday-Sunday market catalysts.
“This implies that traders are utilizing tokenized gold markets as a way to gain short-term gold exposure when traditional markets are closed. When traditional markets reopen, some traders return to traditional gold markets, the premium is arbitraged away, and volumes in tokenized gold markets tend to revert to normal.”
This suggests that decentralized finance (DeFi) users may be reluctant to hold onto gold-backed tokens due to their limited on-chain use cases.
For instance, at the time of writing, neither Paxos’ PAXG nor Tether’s XAUT — the two largest tokenized gold products by market capitalization — can be used as loan collateral on Aave’s lending platform.
On decentralized exchanges (DEXs) like Uniswap, while PAXG and XAUT can be swapped for other tokens, users may be hesitant to trade them due to liquidity constraints and slippage concerns. For now, highly liquid and versatile U.S. dollar-pegged stablecoins — such as Tether’s USDTand Circle’s USDC — remain the preferred means for DeFi users to safeguard against market volatility.
That said, gold-pegged tokens still have a key advantage over fiat-backed stablecoins: gold’s historical negative correlation with the U.S. dollar and its limited exposure to monetary policy risks:
Tether’s gold-backed stablecoin initiative: In June 2024, Tether launched Alloy, a program that allows its gold-pegged XAUT token to be used as collateral for minting a U.S. dollar-pegged stablecoin called Alloy Tether (aUSDT) (not to be confused with aUSDT on Aave, which refers to USDT staked on the platform). As of February 7, 2025, Alloy Tether had a market capitalization of over $3.7 million.Swiss bank UBS tests tokenized gold: In January 2025, Swiss banking giant UBS became the latest financial institution to experiment with tokenized gold. The Zurich-based bank tested an issuance and transaction platform for gold tokens using Ethereum layer two (L2) technology from ZKSync.Aave considers onboarding Paxos’ PAXG token: Multi-chain decentralized lending platform Aave is considering onboarding Paxos’ gold-backed PAXG token. The proposal to enable PAXG collaterals for crypto loans on Aave v3 on Ethereum is still ongoing. It passed an initial “temperature check” in November 2024 but must undergo further community governance processes before final approval.
While gold-backed cryptocurrencies offer a bridge between traditional markets and the on-chain world, their integration into the broader crypto ecosystem remains a work in progress. Key areas holding back adoption include regulatory risks, transparency concerns, and limited DeFi use cases.
Whether gold-backed tokens become a staple of investors’ portfolios will ultimately depend on their ability to provide security and practical utility to both crypto enthusiasts and mainstream investors alike.
