Part One of this series asked what an investor actually owns when buying tokenised gold. Part Two examined whether easier access and faster trading improve the experience of owning it. The next question is what happens when a gold token is put to work across lending, trading and other financial markets.
Gold is already accepted as a valuable asset. Tokenisation could make it easier to pledge as collateral without selling it first, and allow the same holding to move between different financial uses. That promise depends on more than the speed of a blockchain transaction. Banks, trading venues and lenders must be able to recognise the token, establish the holder’s rights and trust the arrangements behind it.
Ownership must survive a failure
Waseem Salim, CEO of Valdora and formerly of the Algorand Foundation, says investors need to know whether a token represents allocated physical gold, an interest in a pool or a contractual claim against its issuer.
“If I am buying a token representing gold, I don’t think I should simply be relying on the creditworthiness of the company that issued the token,” says Salim. “In the event of an issuer or platform failure, the token holder should still have a clear and enforceable claim to the underlying asset.”
He wants issuers to provide independent verification of their holdings, details of the custodian and vault, and a reconciliation between the gold held and the tokens in circulation. Investors should also be told whether the gold is allocated and unencumbered, and what happens if the issuer, custodian or platform becomes insolvent.
Chris Mack, CTO of Quote.Trade, makes a related distinction. An inventory can establish that gold exists; the custody and legal documents must establish who can recover it. He says issuers should disclose any lending or pledging of reserves and provide a practical recovery process.
“Verifying that gold exists and establishing investors’ rights to recover it are separate requirements,” says Mack.
Protection should follow the risk
The UK Financial Conduct Authority’s consideration of a regulatory approach to tokenised gold raises the question of which existing rules fit a product backed by a physical asset. Salim argues that a token representing gold need not automatically be treated like a traditional fund, particularly if it does not manage an investment portfolio. He says any tailored approach must still protect the holder.
“I would retain mandatory requirements around asset segregation, custody, proof of reserves, independent verification, clear redemption and ownership rights, transparent fees, valuation, conflicts of interest, operational resilience, cybersecurity and clear treatment of client assets if any of the parties involved fail,” says Salim.
“The technology should not determine the level of investor protection. The risks of the product should determine the protections required.”
Mack likewise supports proportionate rules while retaining segregated assets, independent reserve verification and enforceable redemption rights. He adds that token issuance and smart contracts need strong controls, and that fees and redemption restrictions should be transparent.
Collateral is already in use
The case for tokenised gold becomes more concrete when the asset can support a loan or trading position without first being sold. Mack says Quote.Trade already accepts PAXG as collateral and supports leveraged long and short trading in it.
“Gold is already functioning as both collateral and a tradable asset,” says Mack. “Common custody, transfer and collateral standards would help extend those benefits across more institutions.”
On Quote.Trade, he says, cross-collateral allows PAXG to support positions in other assets. Portfolio margin, where available, can take qualifying hedges into account when calculating collateral requirements. These uses can help an investor finance a position while continuing to hold gold.
Salim sees a broader possibility: a token that can move from ownership to collateral, lending and settlement, then back again, with fewer layers of intermediaries and reconciliation. He also points out that fractional exposure and electronic gold trading already exist. The potential advance lies in how many purposes the same asset can serve.
“Where I think tokenisation becomes much more powerful is when the asset becomes programmable and composable,” says Salim.
A token needs recognition beyond its own platform
Enmanuel Cardozo, market analyst at Brickken, says tokenisation could make gold easier to access, transfer and use. He is positive about its prospects as collateral across banks and trading venues, while cautioning that the liquidity associated with physical gold does not automatically pass to every token representing it.
“That depends on the custody, transparency, and market behind it,” says Cardozo.
A lender may accept a token issued and held within its own system. Using that token with another institution is harder if the two parties rely on different custody arrangements, legal rights or technical standards. Salim argues that common standards could allow tokenised gold to move between regulated institutions without each one building separate infrastructure.
The emerging use of gold tokens as collateral shows that the idea has moved beyond fractional purchases and continuous trading. The larger test is whether a holder can carry an enforceable claim on verified gold from one financial setting to another. Until institutions can recognise that claim consistently, tokenised gold’s usefulness will depend heavily on the platform where it was issued.
