Gold-Backed Tokens: Tokenised Gold on the Blockchain

Gold-backed tokens represent a digital claim on physical gold held in custody. The two largest are PAX Gold (PAXG) and Tether Gold (XAUT), both priced at approximately one troy ounce of gold (currently ~4,549 USD). They offer the convenience of digital assets with the store-of-value properties of physical gold.

How Gold-Backed Tokens Work

Each PAXG token is backed by one fine troy ounce of gold held in Brink's vaults in London, audited by independent third parties. Holders can theoretically redeem for physical gold above certain minimum thresholds. The token trades on Ethereum (ERC-20) and can be sent globally in minutes.

Advantages Over Physical Gold

Divisibility (fractions of a gram), instant transfer, no storage costs, 24/7 trading, and DeFi integration (use as collateral in lending protocols) are genuine advantages. For small amounts, the effective cost per gram is lower than buying physical gold with typical dealer premiums.

Risks: Counterparty and Smart Contract

The key risks are: custodian failure (Paxos or the vault provider becoming insolvent), smart contract bugs, and regulatory risk (token issuers operating under US regulation — relevant for non-US holders). These risks make gold-backed tokens a complement to, not a replacement for, physical gold held directly.