Tokenized Commodities: How Gold and Silver Work on Blockchain

Tokenized commodities let investors access gold, silver, and other physical assets on blockchain with fractional ownership — the market reached $6.1B by early 2026.

Introduction

Tokenized commodities represent ownership of physical assets such as gold, silver, oil, or wheat through blockchain tokens. A tokenized commodity is a blockchain token backed by a physical commodity stored with a licensed custodian. Smart contracts mint tokens pegged to units of the commodity after independent proof-of-reserves audits verify the reserves.

Traditional commodity markets limit access through high minimum contract sizes, restricted trading hours, and brokerage requirements. Tokenized commodities enable fractional ownership, 24/7 trading, and self-custody without these barriers. Gold leads the sector, but silver, energy, agricultural, and industrial metals have established active markets.

This article explains the tokenization process, leading platforms, benefits over traditional markets, key risks, position within real-world asset markets, regulatory frameworks, and practical acquisition steps. Readers gain a clear understanding of mechanisms, platforms, and considerations for tokenized commodities.

What Are Tokenized Commodities and How Do They Work on Blockchain?

A tokenized commodity is a blockchain token that represents ownership of a physical commodity — such as gold, silver, oil, or wheat — held by a verified custodian. Each token's value tracks the underlying asset directly, so one token typically equals a defined unit of the commodity, such as one troy ounce of gold. Unlike a commodity futures contract or ETF, a tokenized commodity represents a direct ownership claim on a physical asset, not a financial derivative.

The tokenization process follows four steps. First, a commodity owner deposits the physical asset with a licensed custodian — a regulated entity responsible for secure storage. Second, an independent auditor verifies the reserves through a proof-of-reserves process, confirming that the physical commodity matches the number of tokens planned for issuance. Third, smart contracts — self-executing programs written into the blockchain — mint tokens pegged to a unit of the commodity. Fourth, those tokens are issued on-chain and become tradable 24 hours a day, seven days a week.

Proof-of-reserves audits are the primary trust mechanism in this system. An independent auditor checks vault holdings, confirms token-issuance records, and reconciles on-chain token supply against off-chain physical reserves. These audits reduce — but do not eliminate — the risk of misrepresentation by the custodian.

What Are the Main Types of Tokenized Commodities Available on Blockchain Today?

Tokenized commodities now span six distinct categories, ranging from precious metals to carbon credits. Gold leads by a wide margin, but silver, energy, and agricultural tokens have each built active markets. Tokenized commodities tripled in total asset value during 2025, reaching approximately $6.1 billion across all categories by early 2026.

Precious metals form the most mature segment. Tokenized gold held approximately $2.57 billion in market value in 2025, driven by strong inflows into PAXG and XAUT. Silver-backed tokens exceeded $300 million by late 2025, making silver the fastest-growing adjacent category. Energy, agricultural, and industrial categories remain smaller but active, with tokenized oil at $500 million, agricultural tokens at $150 million, natural gas at $100 million, and industrial metals such as copper and lithium at $75 million as of 2025.

_{Data: March 2026. Sources: CoinLaw, Binance Research.}

Carbon credits represent an emerging seventh category. Platforms such as Toucan Protocol and KlimaDAO have tokenized verified carbon offsets on-chain, enabling transparent tracking of retirement and transfer. This segment sits outside conventional commodity classification but follows the same custody-and-issuance structure. Liquidity and standardisation across carbon credit types remain limited as of March 2026.

How Does Tokenized Gold Work and What Are the Leading Platforms?

Gold tokenization begins when a verified custodian receives physical gold bullion and stores it in a London Good Delivery-compliant vault — the international standard for gold bar quality set by the London Bullion Market Association (LBMA). A smart contract then mints one token for each fine troy ounce (31.1 grams) of gold held in custody, creating a direct, one-to-one link between the digital token and the physical metal. Holders can verify the serial number, weight, and purity of their allocated bars through issuer-provided on-chain tools.

Two platforms dominate the tokenized gold market. Tether Gold (XAUT), issued by Tether Limited, held a market capitalisation of approximately $2.48 billion as of February 2026, representing around 60% of the total digital gold market. PAX Gold (PAXG), issued by Paxos Trust Company, reached a market capitalisation of approximately $2.32 billion as of March 2026. Both tokens run on the Ethereum blockchain as ERC-20 tokens — the most widely adopted standard for fungible digital assets — and each represents one fine troy ounce of allocated physical gold.

Two smaller platforms serve more specialised market segments. CGO (Cache Gold) uses a gram-based model, allowing holders to own fractions smaller than one troy ounce. XAUm (Matrixdock), launched by Singapore-based Matrixport, targets institutional and retail investors in Asia and is accessible through regulated digital-asset platforms in that region. These alternatives expand access but remain significantly smaller in liquidity and trading volume compared to PAXG and XAUT.

How Does PAX Gold (PAXG) Differ from Tether Gold (XAUT)?

PAXG operates under the regulatory oversight of the New York State Department of Financial Services (NYDFS), making it the first gold-backed token approved by a U.S. state financial regulator. Paxos publishes monthly independent attestations — from 2025 onwards conducted by KPMG — confirming that each token corresponds to a specific allocated gold bar stored in LBMA-approved vaults in London. This structure provides institutional-grade compliance assurance and appeals to users who prioritise regulatory transparency over trading flexibility.

XAUT links each token to a specific LBMA-accredited gold bar stored in Swiss vaults, with bar details verifiable on-chain. Tether provides quarterly attestations through BDO Italia, a less frequent audit cycle than PAXG's monthly reporting. XAUT's deeper exchange liquidity and integration across major centralised and decentralised trading platforms make it the preferred choice for active traders and crypto-native users seeking a liquid gold instrument.

_{Data: March 2026. Sources: Paxos, CoinMarketCap, BingX.}

What Are the Benefits of Investing in Tokenized Commodities Compared to Traditional Markets?

Tokenized commodities remove several structural barriers that have historically limited commodity market access to institutional or high-capital participants. Traditional commodity futures contracts carry large minimum sizes — a single COMEX gold futures contract covers 100 troy ounces, requiring tens of thousands of dollars in margin. By contrast, tokenized commodity platforms allow purchases of fractions of a single token, lowering the entry threshold to as little as a few dollars.

Settlement speed and trading hours represent two further advantages. On-chain token transfers settle in seconds to minutes, compared to the T+1 or T+2 settlement cycles standard in traditional commodity and securities markets. Tokenized gold traded continuously through weekends in early 2026, with on-chain prices responding to geopolitical events while traditional exchange venues remained closed. Self-custody is a fourth differentiator: token holders can store assets in their own wallets without relying on a broker or third-party custodian, removing one layer of counterparty exposure.

Global accessibility adds a further dimension relevant to emerging-market investors. Tokenized commodity platforms require only a crypto wallet and KYC verification, removing the brokerage account requirements that restrict access in many countries. Traditional commodity markets demand local brokerage infrastructure, foreign-exchange conversion, and often minimum account balances that exclude retail participants in lower-income regions.

_{Data: March 2026. Sources: Bookmap, TradingView/CoinTelegraph, MetaMask, Falcon Finance.}

What Risks and Challenges Should You Consider When Holding Tokenized Commodities?

Tokenized commodities carry five distinct risk categories that buyers should evaluate before entering the market. These risks exist alongside the structural benefits covered in the previous section and apply regardless of the commodity type or platform. Understanding each risk category clearly separates informed participation from speculative exposure.

Custodian risk is the most fundamental concern. Token value depends entirely on the custodian holding the physical commodity as claimed. Proof-of-reserves audits reduce this risk, but they capture a point-in-time snapshot rather than continuous monitoring — a custodian could misrepresent holdings between audit cycles. Custody arrangements must also be bankruptcy-remote, meaning a custodian's insolvency should not give creditors a claim over the underlying commodity. Not all platforms structure custody this way, and buyers should verify legal protections before purchasing.

Smart contract risk introduces a technology-specific vulnerability. Token issuance, minting, and redemption all run through smart contracts, and coding errors or logic flaws in these contracts can result in permanent loss of funds. Oracle manipulation — where attackers feed false price data to a contract — is the most documented attack vector in real-world asset tokenization, capable of triggering incorrect redemptions or mispriced liquidations. Independent smart contract audits by firms such as CertiK reduce but do not eliminate this exposure.

The remaining three risk categories are:

• Regulatory risk: Token legal status varies by jurisdiction. A commodity-backed token treated as a commodity in one country may be classified as a security requiring registration in another, creating compliance uncertainty for cross-border holders. The U.S. Securities and Exchange Commission (SEC) confirmed in 2025 that tokenized securities remain subject to existing federal securities laws regardless of the blockchain technology used to issue them.
• Liquidity risk: Gold tokens (PAXG, XAUT) maintain relatively deep order books, but tokens representing silver, oil, agricultural products, and industrial metals carry significantly thinner liquidity. Thin order books amplify price impact on large orders and widen bid-ask spreads during periods of market stress.
• Counterparty risk: Token holders depend on the issuer to honour redemption requests. Most platforms set minimum redemption thresholds — PAXG requires at least one 400-troy-ounce Good Delivery bar for physical redemption — meaning smaller holders must sell on-market rather than redeem directly.

_{Sources: IOSCO, LinkedIn/Kozin, Elliptic, Ocorian, Gravity Team, Backpack Learn.}

How Does Tokenization of Commodities Fit Into the Broader Real-World Asset Market?

Real-world asset (RWA) tokenization is the practice of representing ownership of physical or traditional financial assets — property, bonds, commodities, or private credit — as blockchain tokens. The global tokenized asset platform market was valued at $3.1 billion in 2024 and is projected to reach $18.7 billion by 2033, growing at a compound annual growth rate (CAGR) of 21.8%. The broader RWA market — encompassing on-chain private credit, U.S. Treasury tokens, real estate, and commodities — surpassed $30 billion by mid-2025, reflecting 260% growth in the first half of that year alone.

Tokenized commodities, led by gold at approximately $2.57 billion in 2025, represent the most mature and liquid segment within the broader RWA market. Private credit and U.S. Treasury tokens have grown faster in total size, but commodity tokens — particularly gold — established proof of concept for physical asset custody and on-chain redemption earlier than other categories. This first-mover maturity makes tokenized gold a reference point for institutional teams designing tokenization frameworks for other asset classes.

_{Data: March 2026. Sources: MarketIntelo, Binance Research, MEXC, Tokenizer.estate.}

How Are Tokenized Commodities Used in DeFi Protocols?

Decentralised finance (DeFi) refers to financial services — lending, trading, and yield generation — run entirely through smart contracts on public blockchains, without banks or brokers. Tokenized gold has become a practical DeFi collateral asset: holders deposit PAXG or XAUT into lending protocols such as MakerDAO (now rebranded Sky) to borrow stablecoins without selling their gold position. This mirrors traditional collateralised lending, but removes the institutional minimums that historically restricted such arrangements to high-net-worth borrowers.

Liquidity provision on decentralised exchanges (DEXs) represents a second use case. Both Uniswap and Sky accept tokenized real-world assets — including commodity tokens — as eligible collateral within their protocol vaults. Holders can supply PAXG or XAUT to liquidity pools, earning trading fees in return for providing depth to the market. DeFi integration for non-gold commodity tokens remains limited as of March 2026, constrained by thin on-chain liquidity and the absence of widely adopted silver or oil token standards across major protocols.

What Regulatory Frameworks Apply to Tokenized Commodities in Key Jurisdictions?

No single global framework governs tokenized commodities. Each jurisdiction applies existing financial law to these instruments, and a token regulated as a commodity in one country may qualify as a security requiring registration in another. Buyers and issuers must verify the applicable rules in each jurisdiction before trading or offering tokenized commodity products.

In the United States, Paxos Trust Company operates PAXG under a Limited Purpose Trust charter granted by the New York State Department of Financial Services (NYDFS) in 2015. In August 2025, NYDFS issued a consent order requiring Paxos to pay a $26.5 million civil penalty and commit a minimum of $22 million to strengthen its AML compliance programme, following findings of deficient anti-money-laundering controls prior to 2023. No comprehensive federal framework for tokenized commodities existed as of March 2026; the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) both assert jurisdiction over different token structures depending on their legal characteristics.

In the European Union, the Markets in Crypto-Assets (MiCA) regulation classifies commodity-backed tokens as asset-referenced tokens (ARTs). ART issuers must hold a reserve of high-quality assets fully covering the token's value, maintain minimum own funds of at least €350,000 for smaller issuers, and allow holders to redeem tokens at market value or receive the underlying asset. The ART rules took effect on 30 June 2024, and the full MiCA regime — covering crypto-asset service providers (CASPs) — entered force on 30 December 2024.

In the Asia-Pacific region, three jurisdictions have established distinct frameworks:

• Singapore: The Monetary Authority of Singapore (MAS) updated its Guide on the Tokenisation of Capital Markets Products in December 2025, confirming a technology-neutral, substance-based approach. Tokenised products regulated as capital markets instruments continue to fall under the Securities and Futures Act 2001, with the same licensing and prospectus requirements as non-tokenised equivalents.
• United Arab Emirates: The Virtual Assets Regulatory Authority (VARA) in Dubai and the Abu Dhabi Global Market (ADGM) operate permissive sandbox frameworks that allow regulated tokenized commodity pilots under supervised conditions.
• Hong Kong: The Securities and Futures Commission (SFC) requires Virtual Asset Service Provider (VASP) licensing for platforms dealing in tokenized products that qualify as securities, applying consistent standards across digital and traditional formats.

_{Data: March 2026. Sources: MoFo, Acquire.fi/MiCA, Two Birds/MAS.}

How Can You Buy and Store Tokenized Commodities Using a Crypto Wallet?

Most tokenized commodity tokens run on the Ethereum blockchain as ERC-20 tokens — a standardised token format that any Ethereum-compatible wallet or exchange can support. PAXG and XAUT are both available on major centralised exchanges including Binance, Coinbase, and Kraken, with minimum purchase amounts as low as $10 on some platforms. Buyers must complete Know Your Customer (KYC) and anti-money-laundering (AML) identity verification before purchasing on regulated exchanges — a requirement applied uniformly across these platforms.

The acquisition process follows four steps:

1. Create an exchange account on a supported platform — Binance, Coinbase, Kraken, or directly through Paxos for PAXG — and complete KYC/AML verification.
2. Fund the account via bank transfer, debit card, or another accepted payment method.
3. Purchase the token by selecting the relevant trading pair (e.g., PAXG/USDT or XAUT/USDT) and entering the desired amount. Fractional purchases are supported — buyers are not required to purchase a full troy ounce.
4. Choose a storage method: leave tokens on the exchange under custodial storage, or withdraw to a self-custody wallet such as MetaMask (software) or Ledger and Trezor (hardware devices) for direct control of private keys.

_{Data: March 2026. Sources: Paxos, Binance, Coinbase, Kraken, BingX, Nexo, TheStandard.}

Physical gold redemption is available from both primary issuers but carries meaningful minimum thresholds. PAXG holders require at least 430 troy ounces — one London Good Delivery bar — valued at approximately $1.9 million at current gold prices, making direct physical redemption practical only for institutional participants. XAUT requires a minimum of approximately 50 troy ounces for Swiss vault delivery, a lower threshold, though delivery is limited to specific locations in Switzerland and carries a 25 basis-point fee. The majority of retail holders exit their position by selling tokens on-market rather than redeeming for physical metal.

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