Key Takeaways
- Tokenized gold started appearing in the crypto industry in 2019-2020, with PAX Gold (PAXG) launching in September 2019 and Tether Gold (XAUT) in January 2020.
- Tokenized gold assets are backed 1:1 by their official issuers and provide users exposure to real-world gold on the blockchain.
- A single token of tokenized gold is equivalent to 1 troy ounce of physical gold.
If you read my previous articles on tokenized stocks and pre-IPOs, you might wonder whether other asset classes like precious metals are being tokenized as well.
Actually there is, and they have already been in the crypto space way back in 2019.
Meet Tether Gold (XAUT) and PAX Gold (PAXG), two of the most well-known tokenized gold products in terms of market cap.
Let us get to know these two assets, how they differ, and which you should choose to hold for the long term.
What are XAUT and PAXG?
XAUT and PAXG are two of the largest tokenized gold products in crypto by market cap. PAXG is issued by Paxos Trust Company, a regulated institution in New York City, while XAUT is issued by Tether, the company that is behind the USDT stablecoin. Overall, their main purpose is to track the price of gold on the blockchain.
XAUT versus PAXG: key differences
Both tokens actually do the same job 99% of the time. However, the main differences are how these tokens were made, who the entity behind them is, which blockchains they support, and etcetera.
I will be providing a table below organizing the facts between XAUT and PAXG:
XAUT vs PAXG: fees and trading costs
In my experience, buying both XAUT and PAXG on a centralized exchange has similar or equal trading costs, so there is no need for you to worry about that.
What you need to worry about is whether you plan to take them off the exchange and into a custodial wallet, like a hardware wallet.
Notably, some crypto exchanges only support Ethereum for both XAUT and PAXG (see the screenshots below), and we all know Ethereum can be quite expensive to transfer, especially during busy times.
Just make sure you use the right crypto exchange if you are looking for the right blockchain.
For example, if you want your XAUT to be on the BNB chain, then you should be using Binance as your go-to exchange.
The same goes for PAXG, if you want your PAXG tokens to be on Base, then you should be using Coinbase.
Which token offers better gold backing and security?
Both tokens offer the highest standards of gold backing and security on their physical gold reserves. But if you have to choose which to hold long term, it is kind of situational.
XAUT versus PAXG: which is better for investors?
If you are living in the United States or use an American-based crypto exchange, then you should be choosing PAXG since Paxos is regulated by the NYDFS.
But if you are living somewhere that is not fully regulated by your state or nation and use offshore crypto exchanges to access crypto assets, then you can choose XAUT.
Overall, both tokens were launched around 2019-2020 and I have heard no negative news of hacks and breaches within their more than seven years of operation. Although there was the Tether FUD back then, nothing really bad has happened as of this writing.
What I also recommend is that you can diversify 50% into PAXG and another 50% into XAUT. That way, in case the other gets compromised, your remaining assets are still safe.
Benefits and risks of holding XAUT and PAXG
The greatest benefit is that you get to hold spot gold in the fastest and most efficient way possible through the power of blockchain technology.
For context, gold trading before was mostly just futures trading on traditional platforms. If you really wanted to invest in spot gold, you would have to buy it physically in the form of earrings, necklaces, and jewelry.
Now that the era we are living in is mostly digital, you can now invest in gold on your smartphone.
Of course, owning XAUT and PAXG also carries risks, such as smart contract risk. But in their seven years in business, both tokenized products have been living quietly in the Web3 industry.
Additionally, these assets are centralized since they are controlled by their issuers. As long as you are not a hacker or laundering money on Web3 wallets, they will not freeze your funds.
Frequently Asked Questions
Have more questions regarding XAUT and PAXG? Refer to the most commonly asked questions below.
Is XAUT better than PAXG or vice versa?
Thereās really no better than the other since both tokensā main purpose is just to mirror the price of gold on the blockchain. XAUT and PAXG are like choosing between Intel and AMD for your CPU, or choosing Windows or iOS as your main personal computer or operating system.
Are XAUT and PAXG backed by real gold?
Yes, both issuers, Paxos and Tether, back their tokenized gold product with real gold. For Paxos, their physical gold is stored in a vault in London, while Tether stores their gold bars in maximum-security vaults in Switzerland. Both issuers also undergo auditing on a monthly or quarterly basis to verify their gold reserves.
Can I redeem XAUT or PAXG for physical gold?
Yes it is possible but it is impractical. In theory, you can redeem your XAUT or PAXG since the tokenized asset is backed 1:1 by the official issuer. But in reality, the process is almost impossible to do with all the requirements and fees you would have to undergo. Not to mention both issuers also operate in different parts of the world.
Can XAUT and PAXG lose value?
Absolutely, since XAUT and PAXG mirror the price equivalent to one troy ounce of gold, both assets go up and down in value relative to the movement of physical goldās price. Note that the quantity of your XAUT or PAXG holdings does not fluctuate, only the value does.
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Rickie Sanchez
Author
Rickie Sebastian Sanchez is a content writer and researcher with four years of experience covering the crypto markets. His work has appeared in outlets including Blockzeit, CryptoFlash.Report, Cryptomaten, and CoinAlarm.ai, where he has built a reputation for clear, research-driven reporting on fast-moving market developments. At UseTheBitcoin, Rickie focuses on crypto and TradFi news, airdrop guides, and newsletter management. He holds multiple certifications from Binance Academy and is also a completer of Bitgetās Blockchain4Youth Learning Hub Program. Rickie holds BTC.
