Gold tokens enter crypto lending as Arch, Aave open loans

Arch Lending now accepts PAXG and XAUT as collateral at up to 75% loan-to-value, the first time the firm has extended crypto-backed credit to tokenized gold. Anchorage Digital will hold the pledged coins, and Arch said it will not rehypothecate the collateral.

The move follows a surge in tokenized gold debt on Aave. The decentralized protocol’s XAUT market reached its $25 million borrowing ceiling in late January, according to a Chaos Labs risk assessment. The risk manager recommended raising the cap to $30 million after finding that demand to use XAUT as collateral for stablecoin borrowing had filled the additional capacity in less than 24 hours. Chaos Labs then proposed staged increases to $36 million, $43 million, and eventually $50 million.

Although Aave’s Ethereum v3 reserve page recently showed about $70 million of XAUT supplied but no XAUT-backed debt, Himanshu Sahay, co‑founder and chief technology officer of Arch Lending, said the January activity should be treated as historical evidence of willingness to use the asset. “The most interesting thing about the demand we’re seeing around tokenized gold is that people aren’t just treating these assets as a way to get exposure to the price of gold,” Sahay told crypto.news. “They’re increasingly looking at them as something that can be put to work within the broader crypto financial system.”

Chaos Labs found that the XAUT market was highly concentrated. Its February assessment said the largest position accounted for more than 75% of all debt secured by XAUT. The report described the users’ health factors as moderately safe and cited XAUT’s liquidity and conservative volatility when assessing liquidation risk. Aave listed XAUT in isolation mode, preventing holders from using the asset to borrow more volatile tokens. Initial parameters allowed borrowers to draw up to 70% of collateral value, with liquidation beginning at 75%.

Arch’s gold-token loans carry a 75% LTV, higher than the company’s existing limits for Bitcoin, Ether, and Solana, which top out at 60%. Sahay said the higher figure reflects gold’s lower historical volatility relative to Bitcoin. He cautioned that digital access does not eliminate the dangers of debt. “The fact that an asset can be used as collateral doesn’t mean it should be leveraged aggressively,” he said.

The two largest gold tokens. Tether’s XAUT, with a market capitalisation of about $3.27 billion, and Paxos’s PAXG, at roughly $1.93 billion, together represent about $5.2 billion in on‑chain value. Tether deployed XAUT on BNB Chain in March, giving the token a second settlement network while each unit remained tied to an ounce of physical bullion.

Recent activity has extended beyond lending. An August CoinShares report found that real‑world asset deposits had tripled to $7.4 billion even as DeFi activity declined, with XAUT and PAXG producing much of the measured spot activity. Traders used the two tokens to adjust gold exposure as bullion prices moved.

Other lenders already offer gold‑backed products. Nexo says eligible customers can borrow against PAXG or XAUT, subject to location and account requirements. YouHodler and CoinRabbit advertise PAXG‑backed loans. Ledn announced XAUT‑backed lending in June but said the service would become available later in 2026.

For borrowers, a collateralised loan supplies cash or stablecoins without triggering a taxable sale. The Internal Revenue Service treats a sale or other disposal as an event that requires the owner to calculate a capital gain or loss. A loan does not involve the same immediate disposal, although a lender’s liquidation of collateral may create tax consequences. The IRS advises digital‑asset owners to keep transaction records and consult a tax professional.

Arch operates under NMLS number 2637200 as ChainFi Inc. and lends to US borrowers except residents of California, Delaware, Hawaii, Maryland, Mississippi, Montana, Nevada, North Dakota, Rhode Island, South Carolina, and Vermont. The company requires identity verification before collateral is transferred.

Tokenized gold reduces practical barriers because the collateral already exists on a blockchain, eliminating the need to transport or store physical bullion. Sahay noted that the blockchain token still introduces risks tied to its issuer, custodian, smart contract, and redemption terms, even when the underlying bullion moves less sharply than Bitcoin. “I don’t think tokenized gold replaces Bitcoin as collateral,” he said. “I think it expands the range of assets that can support crypto‑native liquidity.”