Tokenized Gold Becomes Key Collateral in Crypto Lending

Tokenized gold is becoming increasingly popular as collateral in crypto lending, according to Arch Lending's co-founder and chief technology officer Himanshu Sahay. The growing demand for tokenized gold loans shows that investors are starting to treat these assets as usable parts of the digital financial system.

Aave's XAUT-backed debt reached a $25 million ceiling in late January, with Chaos Labs recommending raising it to $30 million due to high demand. Within days, the added capacity had filled up, and the risk manager proposed staged increases to $36 million, $43 million, and eventually $50 million.

Sahay described the activity as more meaningful than a one-time jump because the extra capacity was used quickly. He noted that the collateral itself is becoming useful, indicating that investors are no longer just treating tokenized gold as a way to track bullion prices but rather as an asset that can be put to work within the crypto financial system.

Arch Lending has added $PAXG and XAUT-backed loans, with Anchorage Digital holding the pledged tokens. The company uses partial liquidations intended to sell only the amount required to restore a loan's health, and it does not rehypothecate borrower collateral.