Tokenized Gold Explained: What It Is and How It Works

Tokenized gold is physical gold that is represented as a digital token, where each token gives the holder a claim on a specific amount of vaulted gold.

Tether Gold (XAUt) on Tether Gold and Paxos Gold (PAXG) on Paxos are the two best known examples. Each tracks one troy ounce of London Good Delivery gold held in a vault, with mint and redeem logic that links the on-chain supply to the off-chain bar list. For the broader set of tokenized products, see LegalBison’s guide to tokenized assets explained.

What is tokenized gold?

What is tokenized gold in plain terms? It is a claim on metal, rather than a synthetic price tracker.

Example: An issuer holds London Good Delivery bars in a custody vault and mints a token that represents a fixed weight of that gold. The holder can keep the token, trade it, or redeem it for physical metal or for account money where redemption is offered.

Most designs use a simple unit:

• PAXG represents one troy ounce of a specific London Good Delivery bar held by Paxos Trust Company. Holders can look up the bar serial and vault.
• XAUt represents one troy ounce of gold held on behalf of the holder, with a similar claim and redeemability into physical bars at the issuer’s discretion and terms.

How tokenized gold works

Four layers make the product function:

1. Vault and bar list. The issuer or its custodian holds London Good Delivery bars in a professional vault. The issuer publishes a bar list with bar numbers and weights and keeps an off-chain allotment that ties each token to identifiable metal. Some issuers allow fractional ownership of a bar, with accounting that ensures the token supply never exceeds the vaulted weight.

2. Mint and redeem. When a client wires money or delivers eligible bars, the issuer mints new tokens that correspond to that weight. When a client redeems, the issuer burns the tokens and either pays account money or, where the terms allow, releases physical metal. Mint and burn are done only by the issuer after custody confirms the movement.

3. Attestation and audit. The issuer engages an auditor to attest that the on-chain token supply equals the vaulted metal. The attestation covers the count of ounces, not a market valuation, and is usually monthly with a bar list update. Paxos posts monthly attestations for PAXG. Tether posts reserve attestations for XAUt. Check the latest issuer attestation rather than a secondary summary.

4. Trading and settlement. Once minted, the token trades like any ERC-20 style token on chains and venues that list it. Transfer is ledger to ledger. Settlement does not move a bar on each trade. The bar only moves on mint and redeem. That is why the same bar can back many token holders until someone redeems.

Tokenized gold vs gold ETF vs physical gold

Founders often compare tokenized gold to a gold exchange traded fund rather than to physical metal. The table below keeps the distinction clear.

Benefits and risks

Benefits that draw users:

• Fractional ownership of vaulted gold without taking delivery
• Around the clock transferability where the token is listed
• Redeemability for those who need an exit to metal or to account money
• Composability: the token can be used as collateral or as the non-cash leg in tokenized deposit settlement

Risks to disclose:

• Custodian risk. You rely on the issuer and its vault operator. If the bar list and attestation are not current, you cannot verify the claim.
• Redemption gate. Many terms give the issuer discretion to delay or limit physical redemption, or to charge fabrication and shipping for a bar.
• Chain and oracle risk. The token runs on a chain with its own key and network risk. Price feeds and settlement rely on oracles and venue integrity.
• Concentration. The tokenized gold market is concentrated in two tokens. XAUt and PAXG account for most of the market cap on the CoinMarketCap list.
• Regulatory treatment. Whether the token is treated as a commodity representation, a security, or a different wrapper depends on the jurisdiction and the exact claim language.

How to issue tokenized gold: checklist for founders

If you plan to issue a tokenized gold product, treat it as a vault and attestation product first, with a token on top, not the other way around.

1. Choose the legal wrapper. Common choices are a trust, a special purpose vehicle, or a direct issuance by a regulated trust company, each with its own claim language. State clearly that the token is a direct claim on a defined weight of London Good Delivery gold held by a named custodian, or on a right that is economically equivalent, and what happens on issuer insolvency.

2. Lock custody. Use London Good Delivery bars with a professional vault operator and a published bar list that the auditor can test against the token supply. Document chain of custody, insurance, and how a bar moves only on mint and redeem. This is the audit trail a BSA/AML review will test.

3. Build attestation. Engage an independent auditor for monthly attestation that ounces on chain equal ounces in vault. Publish the attestation and the bar list, or a hash of it, rather than a summary blog post. For anti-money laundering context on why ongoing monitoring matters, see what is anti-money laundering.

4. Draft redemption terms. Define who can redeem, minimums, fees, timing, and whether redemption is in physical bars, in allocated metal, or in account money. If physical, define bar size, shipping, and know your customer checks at redemption.

5. Assess securities and commodities treatment. Whether the token is a commodity representation, a security, or something else turns on the exact rights the token confers. In the United States the analysis runs under the relevant securities and commodities tests. In the European Union, assess MiCA versus MiFID financial instrument treatment. Get a written view before you market.

6. Cover the trading and market side. List only where you have market-maker and oracle arrangements you can monitor. Plan for halt logic if the attestation is late or the bar list does not reconcile. Keep a public status page for supply versus vault.

7. Staff compliance. Custody and attestation need ongoing review, not a launch-only check. A fractional compliance officer can own transaction monitoring and attestation review between audits.

LegalBison helps issuers on this stack alongside licensing. For the banking side where tokenized gold will likely settle, see tokenized deposits and the banking guides for EMI license and PSP license. To discuss an issuer plan, contact LegalBison.

For background research, the academic view in the SSRN paper on tokenized gold is a useful starting point.

FAQ about tokenized gold

What is tokenized gold?

Tokenized gold is physical gold, usually London Good Delivery bars in a vault, that is represented by a token where each token is a claim on a fixed weight of that metal.

How do I buy tokenized gold?

You buy tokenized gold on a venue that lists a gold token such as PAXG or XAUt, transfer it to a wallet or custody account that supports that chain, and hold the token. If you want physical metal, check the issuer terms for redeemability.

Where to buy tokenized gold?

Where to buy tokenized gold depends on your jurisdiction and custody choice. Major centralized venues that list PAXG and XAUt offer the deepest liquidity. Compare fees, custody model, and the issuer attestation before you choose.

Is XRP going to tokenize gold?

XRP itself does not tokenize gold, but tokenized gold can be issued on the XRP Ledger and other chains where an issuer chooses to mint. Check the issuer and the vault attestation, not just the chain name. Several pilots have tested tokenized gold on the XRP Ledger as a ledger choice, not as an XRP feature.

How much is tokenized gold?

A PAXG or XAUt token tracks one troy ounce of vaulted gold, so the token price follows the spot gold price with fees and venue spreads on top. Compare the live quote to the LBMA price rather than to a secondary token price alone.

What is the difference between tokenized gold and a gold ETF?

Tokenized gold is a direct claim on vaulted metal that trades on chain. A gold ETF share is a claim on a fund that holds gold or gold exposure and trades through a brokerage during market hours with its own expense ratio.

Is tokenized gold the same as digital gold?

No. Digital gold often means a ledger balance or app balance with no on-chain token. Tokenized gold is an on-chain token with a defined claim on vaulted bars and chain-level transferability.

How does tokenized gold maintain its gold peg?

Issuers maintain it through arbitrage plus mint and redeem. If the token trades above spot, new tokens are minted against new vaulted gold. If it trades below, holders redeem and the supply shrinks. Attestation keeps supply equal to vault.

What are PAXG and XAUt?

PAXG is Paxos Gold, one troy ounce per token issued by Paxos Trust Company against London Good Delivery bars. XAUt is Tether Gold, one troy ounce per token issued with a similar gold claim and physical redemption terms. Both publish attestations.

Is tokenized gold safe?

Tokenized gold removes some physical handling risk but adds custodian, redemption, and chain risk. Verify the vault operator, the latest attestation, and the redemption terms before you size a position.