What are Tokenized Commodities? A guide

The commodities market encompasses physical goods such as precious metals (gold, silver), energy (oil, natural gas), and agricultural products (wheat, coffee), among others. These markets operate through a mix of spot trading (for immediate delivery) and derivatives trading (futures, options, and forwards on exchanges like CME or ICE, or via OTC deals). The infrastructure is complex: while major commodity exchanges list standardized contracts, physical trade requires networks of warehouses, inspectors, shipping logistics, and trade finance banks. Key participants include producers (miners, farmers), consumers (manufacturers, utilities), trading firms, financial speculators, brokers, and clearinghouses for futures.

Unlike securities, many commodities are generally not subject to securities regulations. Owning a bar of gold or a barrel of oil is typically a commercial transaction rather than an investment contract. As a result, tokenizing a commodity—such as issuing a token representing one ounce of gold stored in a regulated vault in London—often avoids the regulatory pitfalls that complicate the tokenization of stocks or bonds. In this context, tokenized commodities function similarly to digital warehouse receipts. They benefit from regulatory frameworks that emphasize custodianship and physical asset transparency (for example, under the U.S. Commodity Exchange Act and the EU’s MiCA), rather than the complex investor protections required for securities. This regulatory distinction allows tokenized commodities to represent direct ownership of standardized, audited assets (as seen with PAX Gold’s Brink’s storage) while sidestepping issues such as corporate voting rights or the need for integration with centralized depositories like the DTCC.

Among tokenized commodities, Gold has emerged as the clear leader, with Pax Gold (PAXG) and Tether Gold (XAUT) as the notable frontrunners. In an interview with Keyrock, Paxos representatives have highlighted the key differences between these two offerings, stating:

“The key differences between PAXG and XAUt is regulatory status as well as transparency. … Each PAXG token represents ownership of a specific gold bar. Token holders can view details such as the bar’s serial number, weight, and purity, ensuring clear accountability.”
Charles Cascarilla, Paxos Interview

While gold is one of the most heavily traded assets globally—often surpassing major fiat currencies in daily volume—tokenized gold derivatives like PAXG and XAUT experience markedly lower volume and depth on digital exchanges. Price premiums above spot can emerge, especially during periods of market volatility. For instance, Binance at times has seen up to a 5% premium (500 basis points) on PAXG or XAUT, underscoring the mismatch between global gold markets and onchain liquidity.

Additionally, onchain analysis indicates that PAXG has seen limited uptake in DeFi, with only around $3 million deployed across various protocols. This modest DeFi usage is partly due to the reliance on arbitrage rather than a robust order book. When tokenized gold trades above its real-world spot price, specialized arbitrageurs are incentivized to mint new tokens and sell them at a premium. However, during periods of high volatility, the spread may widen beyond what short-term capital can immediately correct. Market makers balance the incentive to let the price drift above peg to capture higher premiums against the operational frictions involved.

Two additional concerns arise from oracle design. First, if DeFi platforms depend on exchange-based PAXG prices, sudden dips in onchain liquidity or rapid premium fluctuations can trigger liquidations even when the real-world gold price remains stable. Alternatively, if a protocol uses a spot gold price oracle, a custodian or redemption failure might allow an attacker to purchase PAXG at a discount while the oracle still reflects a higher market value, potentially draining protocol treasuries.

While these challenges are significant, the current landscape also offers important positives that lay the groundwork for future growth. The successful tokenization of gold demonstrates that blockchain technology can provide transparent, verifiable proof of ownership and enable 24/7 global trading of physical assets. Platforms like PAXG have built trust through detailed tracking of each gold bar, enhancing investor confidence. Moreover, the regulatory framework for commodities is comparatively more adaptable than that for securities, offering a smoother path for tokenization. These factors—combined with the inherent efficiencies of blockchain-based trading—suggest that with improvements in liquidity, oracle design, and redemption mechanisms, onchain commodity markets have the potential to evolve significantly.

An alternative direction is also emerging: purely synthetic commodity exposure that forgoes physical redemption. Protocols like Ostium let users go long or short on gold (or other commodities and RWAs) with margin, referencing offchain spot prices oracle. This approach addresses the demand gap among traders who find physically redeemable tokens cumbersome.

“If you ask a typical retail trader whether they want to store a tokenized bar of gold in their wallet, they usually say no. They want to go long or short with leverage and pocket the price difference, that’s why we built a decentralized CFD model—so people can trade commodity volatility the same way they do crypto, but still lean on DeFi’s transparency.”
Kaledora Kiernan-Linn, Co-Founder Ostium Labs

By issuing purely synthetic positions, Ostium ensures its prices match real-time oracles for the underlying commodity rather than relying on redemption-based arbitrage. Unlike PAXG or XAUT, there is no right to receive physical gold; instead, traders trade against a stablecoin pool, and get their PNL from the pool.

This architecture allows the protocol to list nearly any commodity or real-world asset with a reliable feed—so far including gold, silver, and copper—reflecting the view that “most traders just want short-term speculative exposure, not physical delivery.” Ostium’s approach thus highlights the trade-off: for many retail traders, leveraged speculation is more appealing than storing a physically redeemable token, yet institutions seeking guaranteed settlement may be less inclined to adopt purely synthetic models. By allowing high leverage and a more diverse range of RWA, this approach might solve the demand side of commodities trading.

Tokenized commodities have so far struggled to gain significant traction in the digital asset space. Despite the relative success of gold-backed tokens like PAXG and XAUT, the overall market remains small—around $1.5 billion—with concerning trends such as PAXG’s 28.5% decline from 588,000 oz to 420,000 oz during the broader crypto market recovery. 

Looking ahead to 2025 and beyond, our view is one of cautious modesty. We see potential only for limited growth or stagnation in tokenized commodities unless a major catalyst emerges or a broader array of commodities—beyond gold—is successfully tokenized. Institutional players dominate traditional commodities markets with access to sophisticated trading infrastructures. Retail crypto investors have shown limited interest in holding tokenized commodities, preferring Bitcoin as their store of value. There appears to be a mismatch between the risk appetite of institutional investors, who already benefit from deep liquidity systems, and the current state of tokenization. Similarly, early retail adopters for tokenized treasuries and stocks have yet to show strong interest in commodity tokens.

“The real-world asset commodities market is experiencing slower adoption … Minting is primarily driven by retail customer demand. Those same customers are digitally native and have also chosen Bitcoin as their store of value.”
Charles Cascarilla, Paxos Interview

Nonetheless, two parallel paths could support future growth. First, more mature redemption options—potentially with lower fees, integrated insurance, or streamlined logistics—could make physically tokenized metals like PAXG more attractive for users seeking a stable, non-fiat store of value. Second, synthetic derivatives such as Ostium may capture the short-term speculative demand that has largely overlooked physically redeemable tokens. By offering a CFD-like trading experience and broadening the range of commodities to include everything from oil to copper, these protocols might shift onchain commodity trading from a slow-moving physical-ownership model to a dynamic, leveraged market.

In any case, demand-side inertia remains the key obstacle. So far, neither physically redeemable nor synthetic offerings have unlocked robust retail interest comparable to other tokenized real-world assets. Still, the emergence of protocols like Ostium suggests a gradual evolution, where commodities may eventually carve out a niche by aligning DeFi’s use case for leverage and 24/7 markets with traditional commodity exposures—regardless if they are physically settled or purely synthetic.