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

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.

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.