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Key Takeaways

Tokenized gold is physical gold that has been turned into a digital token. Usually, one token equals one ounce or a specific amount of real gold.

It allows for fractional ownership, meaning you can invest in gold with very little money instead of buying expensive bars.

This method combines the stability of gold with the speed and 24/7 trading availability of cryptocurrency markets.

Popular examples of tokenized gold include Tether Gold (XAUt) and Paxos Gold (PAXG), which you can trade on crypto exchanges.

It’s important to consider the risks, such as trusting the company holding the gold and potential changes in local regulations.

Introduction

Gold has been a favorite way to protect wealth for thousands of years. It feels safe, especially when the economy is shaky. But owning physical gold can be a hassle. It's heavy, hard to move around, and you need a secure place to store it. Plus, buying a gold bar is too expensive for many people.

Tokenized gold tries to fix these problems by putting gold on the blockchain. This is part of a trend called real-world assets (RWA). Essentially, it creates a digital version of real gold bars or coins. This market is growing fast because people want the safety of gold without the headache of storing it.

What Is Tokenized Gold?

Tokenized gold is simply a digital token on a blockchain that represents ownership of real, physical gold. These tokens usually function like stablecoins, but instead of being tied to the US dollar, their price is tied to the price of gold.

Usually, one token equals a specific weight of gold, like one troy ounce (about 31.1 grams) or just one gram. The actual gold is kept in a secure vault by a custodian (a company responsible for safety). Because these tokens live on a blockchain (like BSC or Ethereum), you can send them to friends, trade them, or use them in financial apps just like you do with other cryptocurrencies.

How Does It Work?

The process of tokenizing gold generally involves three key steps:

Custody: An issuer purchases physical gold (bars or coins) and stores it in a secure, insured vault. This ensures the digital tokens have real-world value backing them.

Digitization and minting: Using smart contracts, the issuer mints digital tokens on a blockchain. The number of tokens minted must match the amount of gold held in reserve (e.g., 100 tokens for 100 ounces).

Auditing and attestation: To maintain trust, reputable issuers employ third-party auditors to verify that the gold in the vault matches the circulating supply of tokens. Some projects use oracle networks like Chainlink to provide Proof of Reserve (PoR), offering on-chain transparency.

When a user wants to redeem their investment, they can usually sell the token on an exchange or, in some cases, redeem the token with the issuer for the physical metal (subject to minimum amounts and fees), at which point the digital token is "burned" (destroyed) to maintain the 1:1 peg.

Benefits of Tokenized Gold

1. Accessibility and fractionalization

Physical gold bars are expensive, often costing thousands of dollars. Tokenization allows for fractional ownership, meaning users can buy small amounts (such as 0.01 of a token) making gold investment accessible to anyone with a smartphone.

2. 24/7 liquidity and efficiency

Traditional gold markets are only open during banking hours, and finalizing a trade can take days. Tokenized gold trades on crypto exchanges that never close. You can buy or sell instantly, 24/7.

3. Transparency and security

Blockchain technology provides an immutable record of ownership. When combined with regular audits and Proof of Reserves, investors can verify the authenticity of the asset more easily than with some traditional paper gold products.

4. DeFi integration

Unlike physical gold sitting in a safe, tokenized gold can be "put to work." It can be used as collateral for loans in DeFi protocols or added to liquidity pools to earn yield, increasing the utility of the asset.

Popular Examples of Tokenized Gold

Tether Gold (XAUt): Created by the same company behind USDT. Each token tracks the price of one troy ounce of gold on a "London Good Delivery" bar. The gold is stored in vaults in Switzerland.

Paxos Gold (PAXG): Created by Paxos Trust Company and regulated by the New York government. Each token is backed by one ounce of gold stored in Brink’s vaults in London.

Risks and Limitations

Tokenized gold is innovative, but you should be aware of the risks:

Custodial risk: Unlike Bitcoin, which is trustless, tokenized gold requires you to trust the issuer to actually hold the gold and honor redemptions. If the issuer goes bankrupt or manages the reserves poorly, the token could lose value.

Regulatory uncertainty: As with the broader crypto market, regulations regarding stablecoins and RWAs are still evolving. Changes in laws could impact the issuance or trading of these tokens.

Market liquidity: While growing, the liquidity of tokenized gold on crypto exchanges is still lower than that of the massive global spot gold market.

Fees: Watch out for transaction fees (gas fees) on the blockchain and any management fees the issuer might charge for storing the gold.

Trading Gold Futures on Binance

If you are more interested in trading price movements than holding gold for the long term, you can also trade gold futures on Binance using the ticker XAUUSDT. Unlike buying tokenized gold (where you own the underlying asset), these are perpetual contracts settled in USDT. This means you are speculating on whether the price of gold will go up or down without ever needing to worry about the custody or redemption of the physical metal.

Closing Thoughts

Tokenized gold is bridging the gap between old-school finance and the digital economy. It upgrades gold for the modern age, offering a great option for investors who want to protect their money from inflation without the stress of holding physical bars. As the technology for Real-World Assets improves, we can expect to see more trading volume, better tools for transparency, and more people using gold-backed tokens in the future.

Further Reading

How to Trade Gold and Silver on Binance Futures 

What Are Real World Assets (RWA) in DeFi and Crypto? 

What Is a Stablecoin?

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