PAXG vs XAUT: How Tokenized Gold Tokens Work

Tokenized gold lets you hold allocated physical gold on-chain — this guide compares PAXG and XAUT across fees, audits, regulation, and DeFi use cases.

Introduction

Tokenized gold is a blockchain-based digital token where each unit represents ownership of a specific amount of physical gold stored in a professional vault. PAXG and XAUT are the two dominant tokens in this sector, together controlling approximately 97% of the $6.1 billion tokenized gold market capitalisation as of February 2026. Both tokens use the ERC-20 standard on Ethereum, enabling 24/7 trading, fractional ownership, and integration with decentralised finance (DeFi) protocols.

This article compares PAXG and XAUT across backing mechanisms, custody arrangements, fee structures, market performance, regulatory frameworks, DeFi use cases, risks, and their position relative to gold ETFs and physical bullion. The analysis draws on official issuer documentation, third-party audits, and market data to highlight structural differences between the tokens. Readers will gain a clear understanding of each token's operational model and practical implications for investors.

PAXG, issued by the NYDFS-regulated Paxos Trust Company, prioritises audit transparency and institutional compliance. XAUT, issued by Tether's TG Commodities Limited, emphasises liquidity and multi-chain deployment on Ethereum and TRON.

What Is Tokenized Gold and How Does It Work on a Blockchain?

Tokenized gold is a blockchain-based digital token where each unit represents ownership of a specific amount of physical gold stored in a professional vault. This structure belongs to the broader category of real-world assets (RWAs) — traditional assets whose ownership rights are recorded on a blockchain. Unlike buying shares in a gold fund, a tokenized gold holder has a direct claim to identifiable, physical metal.

The issuance process follows three steps. First, an issuer acquires physical gold that meets the London Bullion Market Association (LBMA) standard — the internationally recognised benchmark for gold quality and purity. LBMA-certified gold is divided into allocated holdings, meaning each investor owns specific, identifiable bars rather than a share in a pooled reserve. The issuer vaults those bars with a professional custodian, then mints a corresponding number of tokens on a blockchain.

Both PAXG and XAUT use the ERC-20 standard — a set of rules that governs how fungible tokens operate on the Ethereum blockchain. ERC-20 smart contracts enforce minting and burning logic: new tokens are created only when verified gold enters the vault, and tokens are destroyed when holders redeem for physical metal. This architecture gives tokenized gold several features that traditional gold investments cannot match: 24/7 trading, fractional ownership in any denomination, and composability with DeFi protocols — the network of decentralised financial applications built on Ethereum.

How Do PAXG and XAUT Differ in Backing, Custody, and Audit Transparency?

Backing and Vault Arrangements

Both PAXG and XAUT represent one troy ounce of London Good Delivery gold — the highest quality standard set by the London Bullion Market Association (LBMA). London Good Delivery bars must meet strict weight and purity requirements, making them the benchmark for institutional gold trading. PAXG stores its gold in London-based vaults operated by Brink's, a professional security logistics provider. XAUT backs its tokens with gold held in high-security underground vaults in Switzerland, operated by TG Commodities Limited, a subsidiary of Tether Holdings.

Both tokens use allocated gold storage, meaning each holder's claim is linked to specific, identified bars rather than a pooled reserve shared among multiple investors. PAXG takes serial-number transparency a step further: holders can look up the bar serial number, weight, and purity of the gold assigned to their tokens directly on the Paxos website. XAUT offers a similar bar-level lookup through Tether's own verification system, though the interface and depth of published data differ.

Audit Frequency and Regulatory Oversight

Audit frequency is one of the clearest differences between the two tokens. Paxos publishes monthly attestation reports, issued by KPMG LLP as of February 2025, confirming that circulating PAXG tokens match vaulted gold ounce for ounce. Tether conducts quarterly attestations for XAUT, most recently confirming reserves of 712,747 troy ounces as of December 2025.

On the regulatory side, Paxos Trust Company holds a New York State charter and operates under direct supervision of the New York Department of Financial Services (NYDFS). TG Commodities Limited, the XAUT issuer, does not operate under an equivalent US or EU regulatory framework, though Tether has obtained licensing in El Salvador. This regulatory gap matters for institutional investors whose compliance mandates require a regulated counterparty.

_{Data: March 2026}

What Are the Fee Structures for PAXG and XAUT?

PAXG Fee Structure

PAXG applies fees at two distinct points: when tokens are created or destroyed directly through Paxos, and when tokens move on-chain between Ethereum addresses. The creation and destruction fee follows a tiered schedule based on order size — ranging from 1.00% for orders between 2 and 25 PAXG down to 0.125% for orders above 800 PAXG. The minimum direct purchase amount through Paxos is 0.03 PAXG. Paxos waived creation fees on purchases until 31 March 2026 as a promotional measure; standard tiered rates apply from 1 April 2026.

Every on-chain transfer of PAXG between Ethereum addresses incurs a 0.02% protocol-level fee, collected by Paxos automatically through the token's smart contract. Paxos charges no ongoing custody or storage fee to PAXG holders. The Paxos website confirms that zero on-chain transfer fees now apply to institutional partners using Paxos infrastructure directly, though retail on-chain transfers retain the 0.02% charge.

XAUT Fee Structure

XAUT applies a flat 0.25% fee to both direct purchases and physical redemptions made through the official Tether platform. Users purchasing XAUT directly through Tether must also pay a one-time, non-refundable 150 USDT identity-verification deposit, with a minimum purchase of 50 XAUT. Physical redemption requires a minimum of 430 XAUT — approximately one standard LBMA London Good Delivery bar — and may incur additional shipping costs. Like PAXG, XAUT charges no ongoing custody or storage fee for simply holding the token.

For both tokens, secondary-market trading on exchanges such as Binance, Bybit, or Kraken bypasses issuer fees entirely. Traders pay only the exchange's standard spot trading fee, typically between 0.1% and 0.5% depending on the platform and account tier. This distinction is significant: frequent traders who never interact directly with Paxos or Tether pay no token-specific fees beyond standard exchange costs.

_{Sources: Paxos Help Center, Tether/PanNewsLab; Data: March 2026}

How Do PAXG and XAUT Perform as Market Investments?

Market Size and Recent Growth

The tokenized gold sector surpassed $6.1 billion in total market capitalisation in February 2026, growing 53% in under six weeks from approximately $4 billion at the start of January 2026. PAXG and XAUT together controlled 96.7% of that market as of mid-February 2026, confirming the sector's duopoly structure. This rapid expansion reflects a broader rotation into gold-backed assets during crypto market weakness and geopolitical uncertainty.

XAUT held the larger position, with a market capitalisation of approximately $3.6 billion as of mid-February 2026. PAXG reached $2.3 billion over the same period, driven by record January inflows of $248 million — the largest monthly inflow in PAXG's history. Both tokens track the spot price of gold closely, reflecting the underlying asset rather than speculative demand.

Gold Price Correlation and Trading Liquidity

Both PAXG and XAUT trade in close correlation with the spot price of gold, since each token remains redeemable for one troy ounce of physical metal. Spot gold set an all-time high near $5,589 per ounce in late January 2026, before stabilising above $5,000 per ounce through February and March 2026. PAXG and XAUT prices moved in parallel with this run, giving token holders full participation in gold's price performance.

On liquidity, XAUT trades with higher 24-hour volume across major exchanges, benefiting from Tether's deep integration with platforms such as Binance and Bybit. PAXG has a stronger institutional derivatives footprint: Deribit lists PAXG-denominated futures and options contracts, giving professional traders tools to hedge gold exposure directly on-chain. Both tokens are available on leading centralised exchanges; XAUT additionally trades on TRON-based decentralised exchanges, broadening its accessible market.

_{Data: February 2026}

What Regulatory Frameworks Govern PAXG and XAUT in Key Jurisdictions?

PAXG: Regulated from the Ground Up

Paxos Trust Company has operated under a New York State trust charter since 2015 and holds a BitLicense from the New York Department of Financial Services (NYDFS) — one of the strictest state-level crypto frameworks in the United States. The NYDFS classifies PAXG as a virtual commodity rather than a security, a distinction that removes PAXG from SEC jurisdiction and places it under commodity-style oversight. Paxos also obtained SEC No-Action Relief in 2019, providing additional legal clarity on PAXG's classification at the federal level. This regulated trust structure means PAXG holders' gold is legally bankruptcy-remote: if Paxos became insolvent, vaulted gold would remain the property of token holders, not a company asset.

Paxos complies with the Bank Secrecy Act and applies Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures to all direct platform users. The Office of the Comptroller of the Currency (OCC) provides an additional layer of federal oversight of Paxos's trust operations. This multi-regulator structure — NYDFS at the state level, OCC at the federal level — gives PAXG one of the most robust compliance frameworks among tokenized commodity products globally.

XAUT: Regulatory Exposure and Evolving Frameworks

Tether does not operate XAUT under a US or EU regulatory licence equivalent to Paxos's trust charter. TG Commodities Limited, the XAUT issuer, holds registration in El Salvador under that country's digital assets framework, but this does not confer rights to operate in the United States or European Union. Both the EU's Markets in Crypto-Assets Regulation (MiCA) — which classifies gold-backed tokens as Asset-Referenced Tokens (ARTs) subject to licensing and reserve disclosure requirements — and the US GENIUS Act, expected to be fully implemented by July 2026, introduce compliance standards that XAUT's current quarterly reporting practices may not fully satisfy.

Despite the absence of equivalent regulatory licensing, Tether does implement KYC and AML procedures for users who access XAUT directly through the Tether platform. MiCA's ART provisions require issuers to obtain National Competent Authority authorisation in an EU member state and to maintain segregated reserves with independent third-party custody — conditions Tether has not publicly confirmed XAUT meets as of March 2026. For institutional investors whose mandates require a regulated counterparty, this gap between PAXG and XAUT represents a material operational difference.

What Are the Primary Use Cases for PAXG and XAUT in DeFi and Traditional Finance?

Portfolio Diversification and On-Chain Safe Haven

Tokenized gold gives crypto investors direct exposure to gold's price performance without leaving the blockchain ecosystem. During periods of crypto market stress, both PAXG and XAUT function as on-chain safe-haven assets — their value tracks physical gold rather than correlated crypto volatility. This makes them practical hedging instruments for portfolios that hold volatile digital assets alongside more stable positions. Unlike gold ETFs, both tokens trade 24 hours a day, seven days a week, allowing holders to rebalance positions outside traditional market hours.

DeFi Collateral and Derivatives

PAXG is accepted as collateral on MakerDAO — rebranded as Sky Protocol in 2025 — where users can lock PAXG to borrow the USDS (formerly DAI) stablecoin against their gold position. This integration allows holders to maintain gold exposure while accessing on-chain liquidity without selling the underlying asset. In December 2024, Deribit partnered with Paxos to launch PAXG-denominated spot, perpetual, and futures contracts — the first institutional-grade gold derivatives available natively on a crypto exchange. XAUT also functions as collateral across multiple DeFi lending protocols, offering holders similar access to leveraged or yield-bearing strategies.

Cross-Border Transfer and Multi-Chain Reach

Both tokens enable near-instant, low-cost gold transfers across borders — a significant advantage over physical gold shipment, which requires logistics, insurance, and customs clearance. PAXG operates exclusively on Ethereum, benefiting from the network's deep DeFi liquidity but incurring Ethereum gas fees on each transaction. XAUT expands its reach through dual-chain deployment on Ethereum and TRON — giving access to TRON's approximately 370 million wallet users and its low-fee transaction environment. This multi-chain presence makes XAUT more accessible in markets where Ethereum gas costs represent a meaningful barrier to entry.

_{Data: March 2026}

What Risks Should Investors Consider Before Buying PAXG or XAUT?

Counterparty, Custodian, and Regulatory Risk

Both PAXG and XAUT carry counterparty risk — the possibility that the issuing company fails to honour its obligations. For PAXG, this risk is reduced by Paxos's NYDFS trust charter and the legal bankruptcy-remoteness of vaulted gold, meaning token holders retain ownership of their gold even if Paxos becomes insolvent. XAUT's counterparty risk is higher by comparison: TG Commodities Limited operates without equivalent regulatory oversight, and the legal enforceability of holders' gold claims in insolvency has not been tested under US or EU law.

Custodian risk refers to the possibility of physical loss, theft, or inadequate insurance at the vault level. Both issuers describe their vaults as insured, but neither publishes the full policy terms or coverage limits publicly as of March 2026. Regulatory risk remains elevated for XAUT in particular: MiCA's Asset-Referenced Token provisions and the pending US GENIUS Act could require XAUT to obtain new licences or restrict access for EU and US users if Tether does not secure compliant authorisation.

Smart Contract and Technical Risk

As ERC-20 tokens, both PAXG and XAUT depend on the security of their smart contract code and the underlying Ethereum network. The PAXG smart contract has no confirmed exploits or vulnerabilities recorded since its 2019 launch, and Paxos retains an upgrade capability to patch issues if needed. Smart contract risk for RWA tokens extends beyond code alone: the 2025 CertiK RWA Security Report identifies oracle manipulation, fraudulent proof-of-reserve attestations, and custodial failures as key attack vectors across tokenized asset protocols. Any prolonged Ethereum network outage would temporarily freeze both PAXG and XAUT transfers on Ethereum, though XAUT's TRON deployment provides a partial operational fallback.

Redemption Barriers

Direct physical redemption is impractical for most retail holders of either token. PAXG requires a minimum of 430 PAXG — equivalent to roughly one London Good Delivery bar of 370–430 troy ounces — plus a flat redemption fee of $15,000 per request as of early 2026. XAUT sets the same 430-token minimum for physical bar delivery, with delivery restricted to Switzerland and subject to additional transport costs. At gold prices above $5,000 per ounce, the capital required for physical redemption of either token exceeds $2.1 million, making this pathway relevant only to institutional or high-net-worth holders. For all other investors, secondary-market sale or fiat settlement through the issuer remains the practical exit route.

How Does Tokenized Gold Compare to Gold ETFs and Physical Bullion?

Fee Structure and Ownership Model

The most significant structural difference between tokenized gold and traditional gold products is ongoing cost. PAXG and XAUT charge zero annual custody or storage fees — holders pay only at the point of creation, redemption, or on-chain transfer. SPDR Gold Shares (GLD), the world's largest gold ETF by assets, charges a 0.40% gross annual expense ratio deducted continuously from the trust's gold holdings. iShares Gold Trust (IAU) charges 0.25% per year using the same deduction mechanism. Physical gold stored in a professional vault typically costs between 0.5% and 2.0% annually, combining custody and insurance charges. Over a five-year holding period, GLD's 0.40% fee erodes approximately 2% of a position's value, while PAXG and XAUT holders face no equivalent drag.

The ownership model also differs in a legally meaningful way. GLD and IAU shareholders own an interest in a trust that holds gold — they do not hold a direct claim on specific bars. PAXG and XAUT holders, by contrast, have an allocated claim on identified, serial-numbered gold bars in custody. ETF structures are well-established, SEC-regulated, and carry no gas fees or blockchain complexity, which remains an advantage for investors operating within traditional brokerage accounts.

Trading Hours, Settlement, and Fractional Access

Gold ETFs trade only during stock exchange hours and settle on a T+2 basis — two business days after a trade executes. PAXG and XAUT trade 24 hours a day, seven days a week, with blockchain settlement completing in minutes rather than days. This speed difference matters most during rapid market movements: gold's price surges in early 2026 occurred partly over weekends, when ETF holders could not act. Both tokenized gold tokens also permit ownership in fractional amounts below one troy ounce, whereas GLD trades at approximately one-tenth of an ounce per share and physical bullion requires minimum bar sizes.

_{Data: March 2026}

FAQ

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