Tokenized gold proved resilient during a sharp market sell-off, with liquidations processed without disruption on leading DeFi lending protocols. Adoption of these assets as collateral remains limited despite a surge in overall market growth and trading volumes, according to a RedStone report.
Approximately $63 million worth of Tether Gold (XAUT) and PAX Gold (PAXG) currently functions as collateral on Aave v3 and Morpho. That represents just 1.5 percent of the tokens' combined $4.2 billion market capitalization.
The adoption gap persists even as tokenized gold spot trading volume reached $90.7 billion in the first quarter of the year. During that period, gold futures rallied above $5,600 per troy ounce.
The tokenized bullion market faced a critical test on March 23. Aave processed its largest cluster of XAUT liquidations during a sharp gold sell-off, demonstrating the asset's reliability as DeFi collateral under market stress.
The liquidation event followed a 10 percent drop in gold prices over the preceding week—gold's worst weekly performance in over four decades. JPMorgan precious metals strategist Greg Shearer called the period an "extremely brutal flush."
Gold futures have declined more than 26 percent since peaking in January, pressured by expectations of higher U.S. interest rates, which reduce demand for non-yielding assets like precious metals.
The findings point to a key infrastructure gap for the expanding tokenized real-world asset market. Tokenized gold has proven it can handle liquidation stress, but its limited deployment in lending protocols signals a bottleneck in deeper DeFi integration.
The broader tokenized RWA market continues to scale. In June, the sector topped $43 billion in value, according to Token Terminal, spanning private credit, U.S. Treasurys and a growing segment of tokenized equities.
Centralized crypto exchanges are also moving into tokenized assets. A CoinGecko report said the emerging crypto-TradFi market grew to $6.6 billion as of June.
Tokenized gold tokens carry specific risks in DeFi. They can temporarily trade at a discount to the gold spot price during market stress—a depeg that erodes collateral value independently of the physical gold price.
PAXG and XAUT also rely on periodic attestation reports rather than continuous real-time audits, creating a transparency gap between attestation dates regarding reserves.
