Tokenized Gold Becomes Mainstream Collateral in Crypto Lending

Tokenized gold is gaining traction as collateral in crypto lending, with Aave's XAUT-backed debt reaching $25 million and Arch Lending adding loans against the two largest gold tokens, PAXG and XAUT. According to Himanshu Sahay, co-founder and chief technology officer of Arch Lending, investors are increasingly treating tokenized gold as a usable asset in the digital financial system rather than just tracking bullion prices.

The demand for tokenized gold loans is evident in Aave's $25 million debt ceiling, which was fully used before additional capacity filled within 24 hours. Sahay attributes this to investors wanting to use their gold exposure without selling it, allowing them to retain the asset while accessing liquidity. He emphasizes that borrowing against tokenized gold reduces practical barriers, such as transporting physical bullion and arranging separate storage.

Arch Lending now accepts PAXG and XAUT as collateral for loans at up to 75% loan-to-value (LTV), with Anchorage Digital holding the pledged tokens. Sahay notes that digital access does not remove the dangers created by debt, emphasizing the need for suitable LTV limits, custody arrangements, and risk controls.