Demand for tokenized gold has surged this year as physical bullion climbed to record highs, but very little of the asset is being put to work in decentralized finance, highlighting a major adoption gap, according to a new report by RedStone.
Tokenized gold spot trading volume reached $90.7 billion in the first quarter as gold futures rallied above $5,600 per troy ounce. Yet only about $63 million worth of Tether Gold (XAUT) and PAX Gold (PAXG) is currently being used as collateral on Aave v3 and Morpho, RedStone said. That’s just 1.5% of the tokens’ combined $4.2 billion market capitalization.
Despite the limited adoption, 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, demonstrating that tokenized bullion can function reliably as DeFi collateral under market stress.
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.”
Tokenized gold liquidations peaked in late March across Morpho and Aave. Source: RedStone.
Since peaking in January, gold futures have declined more than 26%, pressured by expectations of higher US interest rates, which reduced demand for non-yielding assets such as precious metals.
Related: Tokenized commodities market crosses $6B amid gold’s historic rally
Tokenized gold’s next hurdle could be DeFi adoption
RedStone’s findings suggest tokenized gold has proven resilient as DeFi collateral, but adoption remains limited. With only a small fraction of the market deployed in lending protocols, the data highlights a key infrastructure challenge as tokenized real-world assets (RWA) continue to scale.
Gold is part of a rapidly expanding tokenized RWA market that also includes private credit, US Treasurys with equities growing in import. In June, Token Terminal reported that the sector had topped $43 billion in value.
Meanwhile, centralized crypto exchanges are fast embracing tokenized assets as they push to bridge traditional finance and digital assets. According to a recent CoinGecko report, the emerging “crypto TradFi” market had grown to $6.6 billion as of June.
Related: Crypto Biz: Is the AI-to-crypto rotation underway?
cointelegraph.com