Tokenized Gold Proves Resilient in DeFi but Adoption Remains Limited

Tokenized gold has proven resilient as collateral in decentralized finance (DeFi), but its adoption remains limited. According to RedStone, a recent report found that despite tokenized gold's surge in demand this year, only about $63 million worth of Tether Gold (XAUT) and PAX Gold (PAXG) is currently being used as collateral on Aave v3 and Morpho.

This represents just 1.5% of the tokens' combined $4.2 billion market capitalization. The report noted that tokenized gold spot trading volume reached $90.7 billion in the first quarter, with gold futures rallying above $5,600 per troy ounce.

However, a recent liquidation event on Aave tested the reliability of tokenized gold as DeFi collateral and found it to be functioning smoothly. On March 23, Aave processed its largest cluster of XAUT liquidations without disruption during a sharp sell-off in gold, which fell 10% over the previous week.

Greg Shearer, JPMorgan precious metals strategist, described the sell-off as an 'extremely brutal flush.' The report suggests that tokenized gold has weathered a meaningful market test but faces the next hurdle of DeFi adoption.