Tokenized gold passes DeFi stress test, less than 2% used as collateral

A RedStone report found that tokenized bullion held up during gold's sharp sell-off. The same report shows that very little of the asset is being put to work in decentralized finance, despite surging market growth and trading volumes.

Demand for tokenized gold has surged this year as physical bullion climbed to record highs. Tokenized gold spot trading volume reached $90.7 billion in the first quarter, RedStone said. Gold futures rallied above $5,600 per troy ounce. Only about $63 million worth of Tether Gold (XAUT) and PAX Gold (PAXG) is currently being used as collateral on Aave v3 and Morpho. That is just 1.5% of the tokens' combined $4.2 billion market capitalization.

Tokenized gold has already weathered a meaningful market test, RedStone said. On March 23, Aave processed its largest cluster of XAUT liquidations without disruption during a sharp sell-off in gold. The liquidation event came after gold fell 10% over the previous week, its worst weekly performance in more than four decades. JPMorgan precious metals strategist Greg Shearer described the sell-off as an "extremely brutal flush."

Since peaking in January, gold futures have declined more than 26%. Higher US interest rate expectations reduced demand for non-yielding assets such as precious metals. The March 23 liquidation event demonstrated that tokenized gold can function reliably as DeFi collateral under market stress. The low collateral usage, however, points to an infrastructure gap. The market has not yet integrated tokenized gold into the broader DeFi lending ecosystem. The resilience of the protocol during the liquidation could encourage more lending protocols to support tokenized gold, potentially boosting adoption.

Gold is part of a rapidly expanding tokenized real-world assets (RWA) market that also includes private credit and US Treasurys. In June, Token Terminal reported the sector had topped $43 billion in value. Centralized crypto exchanges are also embracing tokenized assets as they push to bridge traditional finance and digital assets. According to a CoinGecko report, the emerging "crypto TradFi" market had grown to $6.6 billion as of June. For broader context on the crypto market, the shift toward tokenized assets continues to reshape how investors access traditional commodities.