Are Gold-Backed Tokens the Missing Piece in Your Crypto Portfolio?

Gold’s rally in February 2025, reaching record highs of over $2,880, has drawn attention to a niche class of real-world asset (RWA) tokens that have been quietly growing in stature over the past five years.

Since 2020, the total market capitalization of gold-backed cryptocurrencies has exploded from about $12.85 million to over $1.16 billion as of February 2025. Some of the key factors behind this growth include increasing crypto education, the demand for diversification, and the growing institutionalization of the crypto industry

But are gold-backed tokens becoming a staple in crypto investors’ portfolios? Let’s find out.

Table of Contents Table of Contents

1. Key Takeaways
2. Do Gold-Backed Cryptocurrencies Fit Into Your Crypto Portfolio?
3. Tokenized Gold Cryptocurrency Trends
4. Gold Market Analysis
5. The Bottom Line
6. FAQs
7. References

Show Full Guide

Table of Contents

1. Key Takeaways
2. Do Gold-Backed Cryptocurrencies Fit Into Your Crypto Portfolio?
3. Tokenized Gold Cryptocurrency Trends
Show Full Guide
4. Gold Market Analysis
5. The Bottom Line
6. FAQs
7. References

Do Gold-Backed Cryptocurrencies Fit Into Your Crypto Portfolio?

Gold-backed cryptocurrencies offer a unique blend of stability and innovation by bridging the gap between traditional safe-haven gold and the dynamic world of blockchain. They can provide investors with an alternative way to hedge against inflation and market volatility.

However, their integration into the broader crypto ecosystem remains a work in progress, with many adoption challenges ahead, such as regulatory uncertainties, liquidity constraints, and limited DeFi use cases.

Gold as an Investment Class

To decide whether gold-backed tokens fit into your cryptocurrency portfolio, it’s essential to first understand gold as an investment class.

For centuries, the precious metal has been used for trade and as a store-of-value asset. Its long-standing history, global acceptability, and limited supply have solidified gold’s reputation as a unique and highly trusted asset.

Cryptocurrency investors may often argue that Bitcoin makes holding gold unnecessary, as BTC is frequently referred to as “digital gold” due to shared similarities with the precious meta, such as capped supply and decentralized nature.

However, Bitcoin’s reliability as an inflation hedge remains a subject of debate. Gold, on the other hand, has consistently proven its status as a safe-haven asset during times of war, high inflation, monetary policy risks, and other economic and political uncertainties.

Since Donald Trump assumed office as the 47th President of the United States on January 20, 2025, the market performance of gold and Bitcoin has diverged. Between January 20 and February 7, 2025, risk assets have seen a sharp correction as global tariff war risks stoked investor fears of rising inflation and slower economic growth.

Bitcoin prices have fallen 11% from their all-time high of $109,356 on January 20, 2025, to around $97,350 at the time of writing. During this period, the broader cryptocurrency market has lost roughly $520 billion in market capitalization.

In contrast, demand for safe-haven assets has driven gold prices to multiple record highs since President Trump took office. The precious metal has surged as much as 6.6%, rising from $2,700 per ounce to a peak of $2,882 per ounce.

In a research report, rwa.xyz said that gold and Bitcoin are “fundamentally different” assets. The company explained:

“Prevailing narratives that call Bitcoin “digital gold” overlook the unique qualities of each asset. Investing into gold is exposure to gold’s longstanding use case as a status symbol, inflation-hedge, and store of value. Investing into Bitcoin is exposure to a new technology, characterized by decentralized consensus, near-instant settlement, and arbitrary, programmable transactions.”

Gold as a Tokenized Asset

Fortunately for crypto investors, gold-backed tokens offer the best of both worlds, as they combine gold’s low-risk, safe-haven properties with blockchain’s advantages, such as global accessibility, instant settlement, low fees, and 24/7 trading.

Unsurprisingly, gold-collateralized tokens like Tether’s XAUT and Paxos’ PAXG have surged in popularity in 2025 as investors seek ways to protect their portfolios against global uncertainties.

According to data from rwa.xyz, the market cap of tokenized gold assets has risen by 11%, while monthly transfer volumes have surged more than 32% over the past 30 days as of February 7, 2025.

In a research report, rwa.xyz noted that investors are taking advantage of 24/7 crypto markets and tokenized products to gain instant exposure to gold during risk events, particularly on weekends (when traditional markets are closed). However, trading data suggests that investors tend to return to traditional markets once they reopen.

The research firm stated: “It should be recognized that the premium for XAUT and PAXG almost always retreats once traditional markets reopen after the weekend. By analyzing the volume data for tokenized gold products across crypto exchanges, we can see that volumes tend to spike throughout weekend market catalysts.”

“This implies that traders are utilizing tokenized gold markets as a way to gain short-term gold exposure when traditional markets are closed. When traditional markets reopen, some traders return to traditional gold markets, the premium is arbitraged away, and volumes in tokenized gold markets tend to revert to normal.”

However, this trend suggests that decentralized finance (DeFi) users may be reluctant to hold onto gold-backed tokens due to their limited on-chain use cases.

For instance, at the time of writing, neither Paxos’ PAXG nor Tether’s XAUT – the two largest tokenized gold products by market capitalization – can be used as loan collateral on Aave’s lending platform.

On decentralized exchanges (DEXs) like Uniswap, while PAXG and XAUT can be swapped for other tokens, users may be hesitant to trade them due to liquidity constraints and slippage concerns.

Therefore, for the time being, highly liquid and versatile U.S. dollar-pegged stablecoins – such as Tether’s USDT and Circle’s USDC – remain the preferred means for DeFi users to safeguard against market volatility.

That said, gold-pegged tokens offer a key advantage over fiat-backed stablecoins: gold’s historical negative correlation with the U.S. dollar and its limited exposure to monetary policy risks.

Tokenized Gold Cryptocurrency Trends

Here are some key events related to tokenized gold products that have occurred recently:

• Tether’s gold-backed stablecoin initiative: In June 2024, Tether launched Alloy, a program that allows its gold-pegged XAUT token to be used as collateral for minting a U.S. dollar-pegged stablecoin called Alloy Tether (aUSDT). This should not be confused with aUSDT on Aave, which refers to USDT staked on the platform. As of February 7, 2025, Alloy Tether had a market capitalization of over $3.7 million.
• Swiss bank UBS tests tokenized gold: In January 2025, Swiss banking giant UBS became the latest financial institution to experiment with tokenized gold. The Zurich-based bank tested an issuance and transaction platform for gold tokens using Ethereum layer two (L2) technology from ZKSync.
• Aave considers onboarding Paxos’ PAXG token: Multi-chain decentralized lending platform Aave is considering onboarding Paxos’ gold-backed PAXG token. The proposal to enable PAXG collaterals for crypto loans on Aave v3 on Ethereum is still ongoing. It passed an initial “temperature check” in 2024 but must undergo further community governance processes before final approval.

Gold Market Analysis

The outlook for gold remains strong, according to market experts.

In the Q1 2025 outlook report, Ole Hansen, Head of Commodity Strategy at Saxo, highlighted that gold prices are being driven by “an increasingly polarized world.”

“The demand for investment metals has been fuelled by an increasingly uncertain geopolitical landscape, where global tensions and economic shifts have led investors to seek safer assets, a development that shows no signs of fading anytime soon.”

Similarly, Ewa Manthey, Commodities Strategist at Dutch bank ING, pointed to geopolitical tensions, central bank buying, and expected U.S. Federal Reserve rate cuts as key factors supporting gold prices in 2025.

“The main question for the gold market now is the pace at which the Federal Reserve will ease its policy. Lower borrowing costs are positive for gold as the metal doesn’t pay interest … If the central bank is forced to maintain higher rates for longer, this could undermine gold’s appeal.”

“The macro backdrop will remain favorable for gold as interest rates decline and foreign reserve diversification continues amid geopolitical tensions. A stronger USD and tighter monetary policy could eventually provide some headwinds to gold. However, increased trade friction could add to gold’s haven appeal,” Manthey added in a research note dated February 6, 2025.

The Bottom Line

While gold-backed cryptocurrencies offer a bridge between traditional markets and the on-chain world, their integration into the broader crypto ecosystem remains a work in progress. Key areas holding back the adoption of tokenized gold products include regulatory risks, transparency concerns, and limited DeFi use cases.

Whether gold-backed tokens become a staple of investors’ portfolios will ultimately depend on their ability to provide security and practical utility to both crypto enthusiasts and mainstream investors alike.

FAQs