Gold-backed tokens have surged past a $2 billion market cap amid rising gold prices, leading to speculation about their role in cryptocurrency portfolios. Unlike Bitcoin, these tokens offer stability and physical asset backing, but face challenges in utility and liquidity within decentralized finance. Their success depends on overcoming regulatory hurdles and proving their value to investors.
As gold prices hit a staggering high of $3,500 on Tuesday, there’s been a surge of interest surrounding gold-backed tokens, a distinct type of cryptocurrency. Remarkably, last week saw the total market value of these tokens surpass $2 billion, which is a significant leap from just around $12.85 million in 2020. With forecasts from Goldman Sachs suggesting a rise to $4,000 by mid-next year, some investors are contemplating whether these tokens should feature prominently in their cryptocurrency portfolios.
Gold-backed cryptocurrencies are blockchain-based tokens that users can redeem for a specific amount of gold, usually defined as one token corresponding to one troy ounce (31.3 grams) of gold. Unlike Bitcoin, these tokens experience less price volatility. They also have advantages over physical gold, such as divisibility and the potential for easier transferability. They act as a bridge between traditional safe havens and the fast-evolving crypto landscape, appealing to investors looking for protection from inflation and market fluctuations. However, they face challenges, including regulatory issues, liquidity hurdles, and minimal capabilities within decentralized finance (DeFi).
Critics, particularly within the crypto community, argue that Bitcoin already serves gold’s purpose given their similar attributes, such as capped supply and decentralised oversight. Yet, gold’s longstanding reputation as a safe haven remains strong—especially during tumultuous periods. Its historical performance during crises—wars, recessions, and inflation spikes—highlights its reliability as a loss-mitigating asset.
Since Donald Trump took office in January 2025, gold and Bitcoin price trends have increasingly diverged. From January 20 to February 7, risk assets suffered a sharp downturn amid fears of a global tariff war, causing inflation anxieties and economic slowing. Bitcoin’s price plummeted from its peak of $109,356 on January 20 to approximately $85,894 by March 20, leading a decline of about $500 billion in the overall crypto market.
On the other hand, demand for safe-haven assets pushed gold prices to new heights, soaring over 6.6% and climbing from $2,700 per ounce to a recent peak of $3,030. A report from rwa.xyz underscores the inherent differences between gold and Bitcoin. “Labeling Bitcoin as ‘digital gold’ neglects their unique qualities,” analysts stated. They clarified that investing in gold means embracing its historical role as a status symbol and inflation safeguard, while investing in Bitcoin means stepping into a new tech landscape marked by decentralised consensus and rapid transactions.
For crypto enthusiasts, gold-backed tokens could provide the best of both worlds—offering gold’s stability and the perks of blockchain like global access, immediate settlements, and low transaction fees. Tokens like Tether’s XAUT and Paxos’ PAXG have indeed gained traction in 2025 as investors seek to shield their portfolios from ongoing market uncertainties. As noted in rwa.xyz’s report, many are using 24/7 crypto markets to swiftly gain gold exposure during perilous times, particularly on weekends when traditional markets are silent.
However, there’s a catch; once traditional markets reopen, trading data indicates that many investors return to those familiar routes, causing premiums for XAUT and PAXG to subside. Analysis shows that trading volumes for these gold-backed tokens often peak on weekends, suggesting traders are leveraging them for short-term gold exposure when regular markets are shut. Ultimately, if conventional markets reopen before the weekend rates have retreated, premiums vanish, leading to a normalization in tokenized gold volumes.
Despite their potential, DeFi users seem hesitant to fully commit to gold-backed tokens due to their limited applications in the DeFi space. Currently, neither PAXG nor XAUT can be used as collateral on platforms like Aave. Although they can be exchanged on decentralised exchanges such as Uniswap, users are often deterred by issues concerning liquidity and possible slippage. For now, U.S. dollar-pegged stablecoins like Tether’s USDT and Circle’s USDC continue to dominate as safer bets in DeFi environments.
That said, gold-pegged tokens do offer a unique advantage over fiat-backed stablecoins, primarily their historical negative correlation with the U.S. dollar and reduced exposure to monetary policy risks. As it stands, spot gold is up 29% this year alone, repeatedly hitting record highs. Gold-backed cryptocurrencies represent a hybrid solution, bridging the gap between metal markets and the blockchain universe, though their integration into the broader crypto ecosystem requires work. Addressing challenges like regulatory risk, lack of transparency, and restricted DeFi applications will be key. It remains to be seen where this market goes—whether gold-backed tokens will gain acceptance and become a cornerstone of investors’ portfolios depends on their ability to prove both security and practical functionality to crypto and mainstream investors alike.
