Why Tokenized Gold's Explosive Growth Isn't the Full Story: Xash CEO

Key Takeaways

Tokenized Gold Booms in Volume

Despite surging investment and trading volumes, tokenized gold has struggled to establish meaningful utility in decentralized finance (DeFi), raising questions about whether blockchain technology is delivering advantages beyond traditional gold investment products.

The tokenized gold market has expanded rapidly since late 2024, driven by growing investor demand and rising gold prices. However, Kevin Huynh, co-founder and CEO of Xash, argues that the sector’s growth masks a fundamental weakness: most tokenized gold remains largely disconnected from the DeFi applications that proponents say distinguish blockchain-based assets from traditional investment products.

According to the World Gold Council’s 2026 Digital Gold Market Report, the tokenized gold market has grown fivefold since late 2024, with tether gold (XAUT) and pax gold (PAXG) accounting for more than 90% of the market. Spot trading volumes reached $90 billion in the first quarter of 2026, reflecting growing investor interest in blockchain-based representations of physical gold.

Yet Huynh, speaking to Bitcoin.com News, cautioned against interpreting these metrics as evidence that tokenized gold has achieved widespread practical adoption.

“Buying isn’t the same as using,” Huynh said. “The better measure of adoption is what holders do with their tokens.”

He pointed to estimates showing that only approximately $63 million worth of PAXG and XAUT is deployed as collateral on Aave and Morpho, two major DeFi lending platforms. That represents roughly 1% of their combined market capitalization of approximately $4.9 billion, based on the figures he cited.

Although these estimates do not account for every potential use of tokenized gold, Huynh believes they illustrate the limited penetration of gold-backed tokens into decentralized financial applications.

Rising Gold Prices Explain Only Part of Market Growth

Huynh acknowledged that tokenized gold’s expansion reflects genuine investor demand rather than merely the appreciation of the underlying precious metal. He cited PAXG’s circulating supply, which more than doubled from approximately 198,000 tokens at the end of November 2024 to roughly 448,000 now. Over the same period, gold prices rose from approximately $2,660 per ounce to $4,030, an increase of more than 50%.

According to Huynh, approximately two-thirds of PAXG’s market value growth over that period came from the issuance of additional tokens, while rising gold prices accounted for the remaining third. Nevertheless, he argued that the distinction between buying tokenized gold and using it remains crucial when assessing the sector’s long-term prospects.

“Tokenized gold saw $90 billion in spot trading volume in the first quarter of 2026, but that’s people trading the gold price, which they can already do with an ETF,” Huynh said.

He argued that genuine adoption would require tokenized gold to perform functions that physical bullion and traditional investment products cannot easily replicate.

“Genuine adoption is when the token does something a bar in a vault can’t: secure a loan, settle a payment, or be earned through activity. That part is still at an early stage.”

Blockchain Transparency Has Not Eliminated the Trust Problem

Beyond limited utility, Huynh identified another structural obstacle facing tokenized gold: blockchain technology cannot independently guarantee the existence, ownership, or recoverability of the physical assets backing digital tokens.

The World Gold Council’s research found that nearly four in five investors want to trust a digital gold provider before committing funds, suggesting that traditional concerns about custody and investor protection remain central to adoption.

“A blockchain proves what happened on the ledger. It can’t prove what happened off it,” Huynh said. “A gold token is a claim on a bar sitting in a vault. The chain can’t tell you that the bar exists, that nobody else has a claim on it, or that a court will hand it to you if the issuer fails.”

He argued that while blockchain transparency enables investors to verify token issuance and transfers, it cannot replace independent audits, insurance arrangements, or legally enforceable ownership rights.

For investors, the ability to redeem tokens for physical gold remains particularly important. Huynh cited Paxos’ physical redemption requirements, which he said involve a minimum of 430 PAXG plus fees, placing direct physical redemption beyond the reach of many smaller investors.

In his view, the industry’s objective should therefore be to minimize reliance on individual intermediaries rather than claim that blockchain technology can eliminate trust altogether.

“Blockchain’s job is to make those safeguards cheaper and faster to check, not to replace them,” he said.

Tokenized Gold Faces a Distribution and Utility Challenge

Huynh also questioned whether tokenized gold’s potential cost advantages are sufficient to attract mainstream investors away from established investment products. He noted that PAXG does not charge ongoing storage fees, while the SPDR Gold MiniShares Trust (GLDM), a low-cost U.S. gold exchange-traded fund (ETF), charges an annual expense ratio of 0.10%.

Despite that difference, Huynh cited approximately $31 billion in assets held by GLDM, substantially exceeding PAXG’s market capitalization.

“Being cheaper isn’t enough,” he said.

Instead, he identified distribution, cost, and utility as the three factors likely to determine whether tokenized gold captures a meaningful share of the broader digital gold market, which the World Gold Council estimates could reach $160 billion to $170 billion by 2031.

That projection includes digital gold products beyond blockchain-based tokens.

Huynh pointed to the success of digital gold services integrated into mainstream payment platforms and banking applications, particularly in Asian markets. He cited India’s Unified Payments Interface, where digital gold purchases reportedly reached 254 million transactions in March 2026, and Indonesia’s Pegadaian Tring application, which has attracted more than 6 million users.

According to Huynh, these examples demonstrate the importance of making gold investment accessible through platforms consumers already use. However, he argued that tokenized gold has yet to achieve comparable distribution through major banking and payment applications in Western markets.

More importantly, he believes tokenized gold must establish uses that distinguish it from conventional gold investment products.

“A token that just sits in a wallet competes with ETFs on price alone,” Huynh said. “An ETF share can’t be spent or earned onchain, so that demand is tokenized gold’s to win.”

Could Stablecoin Activity Unlock Tokenized Gold Demand?

One potential route toward greater utility, according to Huynh, is connecting tokenized gold rewards to the expanding use of stablecoins across decentralized financial markets. Rather than requiring investors to purchase gold tokens directly, Xash has unveiled a model that rewards users with gold for participating in activities such as stablecoin lending, liquidity provision, and trading on Solana-based DeFi platforms.

Huynh believes this approach could address two challenges simultaneously: the limited practical use of tokenized gold and DeFi’s longstanding difficulty retaining users after financial incentives expire.

He pointed to earlier liquidity mining programs that attracted substantial capital through governance-token rewards but struggled to retain participants once those incentives ended.

Although some protocols subsequently shifted toward stablecoin-denominated rewards, Huynh argued that changing the reward asset does not necessarily change the behavior of participants seeking short-term returns.

“So the problem is no longer what the reward is worth, but who the reward attracts: cash incentives attract short-term yield farmers,” he said.

Xash’s approach is based on the premise that users accumulating gold as a long-term asset may be more inclined to remain active than participants primarily seeking temporary incentive payments. However, whether gold-denominated rewards can consistently improve retention remains to be demonstrated.

Huynh nevertheless sees opportunities extending beyond DeFi lending and trading. He suggested that stablecoin payment cards could eventually offer gold rewards on everyday purchases, creating demand among consumers who may have little interest in directly trading cryptocurrencies or investing in gold.

“New demand for gold doesn’t depend on anyone deciding they want exposure to the gold price. It depends on how much people want to use stablecoins,” he said.

The broader implication is that tokenized gold’s next phase of growth may depend less on the price of bullion and more on its integration into everyday financial activity.

For now, the sector’s rapid expansion demonstrates growing demand for digital exposure to gold. Whether it can translate that demand into widespread blockchain utility remains an open question.