By JAE, PANews
On September 3, 2025, Ray Dalio, founder of Bridgewater Associates, wrote on the X platform that the US dollar debt crisis was one of the factors driving the prices of gold and cryptocurrencies. That same day, the international gold price hit a record high of $3,578.32 per ounce. Meanwhile, the tokenized gold market in the crypto industry has surpassed $2.6 billion, and Tether has recently been reported to be in talks to invest in the gold mining industry.
While the gold market continues to soar, with frequent success reports and a generally favorable outlook, a wave of digital transformation is sweeping across the market. Recently, the World Gold Council (WGC) and leading international law firm Linklaters jointly released a groundbreaking white paper, formally proposing a new definition of the "Wholesale Digital Gold" ecosystem and "Pooled Gold Interests" (PGI). The gold market's digital upgrade is more than just a technological shift; it represents a strategic response from TradFi to the crypto market. As one of the oldest financial assets, gold is also embracing the new digital era's emphasis on efficiency and flexibility, unlocking new use cases within the TradFi ecosystem.
From trading restrictions to mortgage obstacles, WGC provides a "digital solution" for the gold market
Currently, London’s over-the-counter (OTC) gold market is primarily comprised of two clearing models: allocated gold and unallocated gold, each with its own strengths and weaknesses that create the “opportunity gap” identified in the white paper.
Allocated gold refers to specific gold bars in a physical vault with unique serial numbers, fineness and weight information. Its biggest advantage is clear ownership. Investors have direct ownership of the physical gold bars, which effectively isolates and custodians from credit risks. However, the "cost" of this model is higher complexity, the indivisibility of transactions that only accept whole gold bars (usually about 400 ounces), and the resulting liquidity restrictions.
In contrast, unallocated gold represents an investor's claim on a specific amount of gold held by a custodian. Because it doesn't require the allocation of specific gold bars, this model offers greater flexibility and liquidity, allows for trading in units as low as a thousandth of an ounce, and provides a more efficient settlement process. However, its disadvantage is significant counterparty risk. In the event of the custodian's bankruptcy, investors' claims on the gold will be liquidated along with other unsecured creditors, making it difficult to obtain judicial protection for their assets.
The white paper points out that both current models have serious limitations in serving as financial collateral. Unallocated gold, due to its debt nature, generally cannot be considered eligible collateral under UK and EU law. While allocated gold is legally feasible, its "cost" means that in practice it requires frequent physical transfers, deliveries, and segregation, resulting in extremely high costs and complexity, making it difficult to use as collateral.
The WGC proposed a new PGI model as a solution. The PGI is based on a pool of physical gold bars held jointly by core participants, independent of the custodian's own assets, with divisible interests.
The legal foundation of PGI is what distinguishes it from existing models. The white paper notes that the scheme is based on Section 20A of the UK Sale of Goods Act 1979, which allows the transfer of undivided shares in "identified bulk goods" without physically separating the goods. This legal framework defines PGI as an "intangible movable," meaning that its transfer does not require the physical movement of the goods, but rather represents a transfer of rights executed on a digital ledger.
The core advantages of PGI are mainly reflected in three aspects: first, like unallocated gold, it can be divided into trading units of one thousandth of an ounce, providing higher flexibility; second, due to the legal definition of "exclusive rights", the assets of PGI holders are "bankruptcy-resistant" and their assets will not be liquidated even if the custodian institution goes bankrupt, thus filling the shortcomings of unallocated gold; finally, as an intangible movable property, PGI is naturally suitable as collateral, and its design takes into account compliance requirements such as the EU, UK EMIR and the US Dodd-Frank Act, which may activate the collateral potential of gold in OTC and central clearing counterparties.
The practical path of tokenized gold
In fact, in response to the long-standing pain points of the gold market, such as low liquidity, difficulty in collateralization, and high credit risk, the crypto market has conducted preliminary explorations through tokenized gold, providing a feasible practical example for the digitization and financialization of gold.
As a pioneer in the crypto market, Tether launched Tether Gold (XAUT) in 2020, with a current market capitalization exceeding $1.3 billion. Each XAUT token represents one troy ounce of LBMA-standard gold bar, stored in a Swiss vault. Technically, XAUT is an ERC-20 token issued on Ethereum, enabling 24/7 global trading, freeing it from the constraints of traditional market hours.
XAUT offers the advantages of high liquidity and divisibility (accurate to one-millionth of an ounce), and its widespread adoption as a crypto asset within the DeFi ecosystem. XAUT provides crypto investors with a convenient way to gain exposure to gold and can be used as a hedge against cryptocurrency volatility. However, XAUT's drawbacks lie in its highly centralized control and questionable transparency. The underlying assets are completely dependent on Tether's credit and solvency, presenting significant counterparty risk. Although Tether is governed by the British Virgin Islands, its legal framework is not widely recognized in mainstream financial markets, and its ownership resembles a contractual beneficiary's rights rather than a legally clear proprietary right.
Paxos Gold (PAXG) represents a compliance-first approach to tokenized gold, currently valued at approximately $1 billion. Issued by Paxos Trust Company, PAXG is strictly regulated by the New York Department of Financial Services (NYDFS). This strong regulatory backing is a significant compliance advantage for PAXG over many similar projects.
Similarly, PAXG is an ERC-20 token issued on Ethereum, each representing a single troy ounce of LBMA gold bar held in a London vault. Paxos claims ownership of a specific physical gold bar and has developed a unique feature: users can access the serial number and physical characteristics of the physical gold bar associated with their token simply by entering their Ethereum wallet address, providing an additional layer of trust and transparency.
In addition to regulatory backing, PAXG's unique advantages include a flexible redemption mechanism—institutional investors can redeem it directly for physical gold bars. Furthermore, PAXG has gained widespread recognition in leading DeFi protocols such as Curve and Aave, enabling lending and liquidity provision, which increases its profitability. Leveraging its trust company structure, PAXG establishes a legal framework similar to proprietary rights within the traditional legal system, serving as a bridge between the TradFi and crypto markets.
The paradigm battle among three types of gold digitization solutions
The fundamental differences between XAUT and PAXG's tokenized gold and WGC's PGI digital gold solution in terms of law, technology, market positioning and core use cases reveal the different directions chosen by traditional finance and the crypto market when facing the same issue.
In terms of law and ownership, WGC places greater trust in the law. PGI does not develop a completely new asset class, but rather establishes a new ownership definition for "intangible movable property" within the existing legal framework. Its advantage lies in its legal validity and enforceability guaranteed by a centuries-old judicial system. While this solution may sacrifice some of the decentralization advantages of public blockchains, it also provides necessary legal certainty for institutional investors.
In contrast, cryptocurrencies place greater trust in code. While PAXG, through its regulated trust company structure, attempts to establish similar proprietary rights within the traditional legal framework, the decentralized nature of the ERC-20 token standard presents inherent legal conflicts. XAUT, on the other hand, is primarily defined by Tether's terms of agreement and smart contracts, and the legal validity of both remains unverified within the mainstream legal system.
In terms of technical architecture and market positioning, PGI is essentially an infrastructure that emphasizes "technology neutrality" and compatibility with emerging solutions such as distributed ledger technology. The WGC's description suggests that the solution is more likely a permissioned consortium blockchain operated collaboratively by core participants, aiming to digitize and automate the inter-institutional clearing process. Its target market is the highly closed institutional market with extremely high requirements for trust and efficiency, specifically addressing the clearing and collateral issues among large institutions in the London OTC market.
XAUT and PAXG, on the other hand, are more like products, both issued on public blockchains like Ethereum. They are permissionless assets that can be held, transferred, and traded by any user through a crypto wallet, without having to go through the complex KYC/AML processes of TradFi institutions. Therefore, they are targeted at the DeFi and retail markets, serving crypto-native protocols and retail investors.
In terms of core use cases, WGC's primary goal is to unlock the potential of gold as an institutional-grade collateral. By addressing the legal and practical challenges of gold collateralization, PGI will enable the efficient use of gold in scenarios such as repos and lending, thereby revitalizing trillions of dollars in existing assets. The WGC CEO stated that gold needs to transform from a "non-interest-bearing" asset to an "interest-bearing" one.
XAUT and PAXG are primarily focused on empowering the crypto ecosystem. As gold-backed stablecoins, they can be used for lending, liquidity provision, volatility hedging, and portfolio diversification in DeFi. While the two solutions offer superficially similar use cases, their underlying logic is fundamentally different. PGI aims to transform the long-established and large-scale TradFi market, while XAUT and PAXG are targeting the rapidly growing DeFi market.
PGI is TradFi's attempt to "embody the essence" of blockchain technology, adopting a digital form while remaining true to the essence of TradFi. This selective innovation may maximize the benefits of integrating digital technology into existing frameworks while minimizing regulatory risks.
PGI, PAXG, and XAUT have the potential to form a multi-dimensional, multi-layered "gold ecosystem." PGI will dominate the institutional market, focusing on solving high-value, large-volume liquidation and collateral issues. PAXG, leveraging its regulatory compliance advantages, has the potential to bridge mainstream institutions and the crypto market, providing a trusted, regulated channel between TradFi and DeFi. XAUT can continue to focus on the retail and crypto-native markets, securing a niche with its high liquidity and broad compatibility.
