Tokenized gold has seen explosive growth in trading volumes, but its utility in decentralized finance (DeFi) remains limited, according to Kevin Huynh, co-founder and CEO of Xash. The market for tokenized gold has expanded fivefold since late 2024, with tether gold (XAUT) and pax gold ($PAXG) dominating over 90% of the market. Spot trading volumes reached $90 billion in the first quarter of 2026, yet Huynh argues that most tokenized gold is not actively used in DeFi applications.
Huynh highlighted that only about $63 million worth of $PAXG and XAUT is deployed as collateral on major DeFi lending platforms like Aave and Morpho, representing roughly 1% of their combined market capitalization of approximately $4.9 billion. He emphasized that genuine adoption requires tokenized gold to perform functions beyond traditional gold investment products, such as securing loans or settling payments.
Despite the market growth, Huynh noted that blockchain technology cannot independently verify the existence or ownership of the physical gold backing these tokens. He cited Paxos’ physical redemption requirements, which involve a minimum of 430 $PAXG plus fees, making direct redemption challenging for smaller investors. Huynh argued that blockchain transparency should complement, not replace, traditional safeguards like audits and insurance.
Looking ahead, Huynh suggested that connecting tokenized gold rewards to stablecoin activities could unlock greater demand. Xash has introduced a model that rewards users with gold for participating in stablecoin lending and trading on Solana-based DeFi platforms. This approach aims to address both the limited utility of tokenized gold and the challenge of retaining users in DeFi after financial incentives expire.