The World Gold Council plans to promote digital gold, analyzing the different practical paths of PGI, PAXG, and XAUT.

Author: J.A.E, PANews

On September 3, 2025, Ray Dalio, the founder of Bridgewater Associates, posted on platform X that the dollar debt crisis is one of the factors driving the rise in gold and cryptocurrency prices. On the same day, the international gold price reached a historic high of $3,578.32 per ounce. Meanwhile, the tokenized gold market in the cryptocurrency industry has surpassed $2.6 billion, and there are recent reports that Tether is negotiating investments in gold mining.

In the gold market, which is progressing rapidly, with encouraging news from the front lines and an overall favorable situation, a wave of "digital transformation" has erupted internally. Recently, the World Gold Council (WGC) collaborated with top international law firm Linklaters to release a groundbreaking white paper, formally proposing new definitions for the "Wholesale Digital Gold" ecosystem and "Pooled Gold Interests" (PGI). The "digital upgrade" of the gold market is not just a simple technological revolution, but rather a strategic response from TradFi to the crypto market. Gold, as the oldest financial asset, has also entered a digital new era that emphasizes efficiency and flexibility, unlocking new use cases within the TradFi system.

From trading restrictions to collateral obstacles, WGC offers a "digital solution" for the gold market.

Currently, the over-the-counter (OTC) gold market in London mainly consists of two clearing models: allocated gold and unallocated gold, whose respective advantages and disadvantages constitute the "opportunity gap" mentioned in the white paper.

Allocated gold refers to specific gold bars that have a unique serial number, purity, and weight information stored in a physical vault. Its greatest advantage is the clarity of ownership, allowing investors to have direct ownership of the physical gold bars, thereby effectively isolating and custodially managing the credit risk between banks. However, the "cost" of this model is higher complexity, the indivisibility that only accepts transactions in whole gold bars (typically around 400 ounces), and the resulting liquidity constraints.

In contrast, non-allocated gold represents a claim that investors have on a specific quantity of gold held by a custodian. Since there is no need to allocate specific gold bars, this model offers greater flexibility and liquidity, with trading units as low as one-thousandth of an ounce, and a more efficient settlement process. However, its disadvantage lies in significant counterparty risk. If the custodian goes bankrupt, the investor's claim to the gold will be settled alongside other unsecured creditors, making it difficult to obtain judicial protection for the assets.

The white paper points out that the current two modes have serious limitations in serving as financial collateral. Non-allocated gold, due to its debt-like nature, typically cannot be considered qualified collateral under relevant UK and EU laws. On the other hand, allocated gold, while legally feasible, has a "cost" that means it requires frequent transfers, deliveries, and isolation of the physical asset in practice, leading to extremely high costs and complexity, making it difficult to use as collateral.

WGC has proposed a brand new PGI model as a solution. The foundation of PGI is a pool of physical gold bars that is jointly held by a "core participant" and is independent of the assets owned by the custodial institution, with rights that are divisible.

The legal foundation of PGI is the key to its distinction from the current model. The white paper states that the scheme is based on Section 20A of the UK Sale of Goods Act 1979: allowing the transfer of ownership of undivided shares in "identified bulk goods" without the requirement to separate the physical items. Through this legal framework, PGI can be defined as an "intangible asset," meaning that the transfer of PGI does not require the movement of physical items, but rather constitutes a transfer of rights executed on a digital ledger.

The core advantages of PGI are mainly reflected in three aspects: first, like non-allocated gold, it can be divided into trading units of one-thousandth of an ounce, providing a high degree of flexibility; second, due to its legal definition of "proprietary rights," assets held by PGI holders have "bankruptcy immunity," meaning that even if the custodian institution goes bankrupt, their assets will not be liquidated, thus filling the gap left by non-allocated gold; finally, PGI, as an intangible asset, is naturally applicable as collateral, and its design takes into account compliance requirements such as those of the EU, UK EMIR, and the US Dodd-Frank Act, which may activate the potential of gold as collateral in OTC and central clearing counterparties.

The practical path of tokenized gold

In fact, in response to the long-standing pain points of the gold market, such as low liquidity, difficulty in collateralization, and high credit risk, the crypto market has conducted preliminary explorations through tokenized gold, providing a feasible practical example for the digitization and financialization of gold.

As a pioneer in the cryptocurrency market, Tether issued Tether Gold (XAUT) tokens in 2020, which currently has a market value exceeding $1.3 billion. Each XAUT token represents one troy ounce of LBMA standard gold bars, stored in Swiss vaults. From a technical architecture perspective, XAUT is an ERC-20 token issued on Ethereum, enabling 24/7 uninterrupted global trading, no longer restricted by traditional market trading hours.

XAUT has the advantages of high liquidity and high divisibility (with precision up to one millionth of an ounce), and it is widely adopted as a crypto asset in the DeFi ecosystem. XAUT provides a shortcut for investors in the crypto market to hold exposure to gold, serving as a tool to hedge against the volatility of cryptocurrencies. However, the downside of XAUT lies in its highly centralized control and questionable transparency, as the underlying assets are entirely dependent on Tether's credit and solvency, presenting a significant counterparty risk. Although Tether is governed by the British Virgin Islands jurisdiction, its legal framework is not widely recognized in mainstream financial markets, and its ownership characteristics are akin to a protocol-based beneficiary right rather than a legally clear proprietary right.

Paxos Gold (PAXG) represents a compliance-first tokenized gold pathway, with a current market value of approximately $1 billion. PAXG is issued by the trust company Paxos Trust Company and is strictly regulated by the New York Department of Financial Services (NYDFS). The strong regulatory endorsement is a significant advantage that distinguishes PAXG in terms of compliance from many similar projects.

Similarly, PAXG is also an ERC-20 token issued on Ethereum, with each token representing one troy ounce of LBMA standard gold bars held in the London vault. Paxos claims that investors have ownership of specific physical gold bars and has developed a unique feature: users can enter their Ethereum wallet address to query the serial numbers and physical characteristics of the gold bars associated with their tokens, providing an extra layer of trust and transparency for holders.

In addition to regulatory endorsement, PAXG's unique advantages also include a flexible redemption mechanism—institutional investors can redeem it directly for physical gold bars. At the same time, PAXG has gained widespread recognition in leading DeFi protocols such as Curve and Aave, allowing it to be used for lending and providing liquidity, thus enhancing its yield attributes. With its trust company structure, PAXG establishes a legal framework similar to proprietary rights within the traditional judicial system, serving as a bridge connecting TradFi and the crypto market.

The Paradigm Battle of Three Types of Gold Digitalization Schemes

The fundamental differences between the tokenized gold of XAUT and PAXG and the WGC's PGI digital gold program in terms of legal, technological, market positioning, and core use cases reveal the different directions chosen by traditional finance and the crypto market when faced with the same issue.

In terms of law and ownership, WGC trusts the law more. PGI is not developing a brand new asset class, but is establishing a new definition of "intangible movable property" within the existing legal framework, whose advantages lie in the legal validity and enforceability guaranteed by a judicial system validated over hundreds of years. Although this solution may sacrifice some decentralization advantages of public chains, it also provides necessary legal certainty for institutional investors.

In contrast, cryptocurrencies trust code more. While PAXG attempts to establish similar proprietary rights within the traditional legal framework through its regulated trust company structure, the decentralized nature of the ERC-20 token standard still has inherent contradictions with the law; XAUT's ownership is primarily defined by Tether's protocol terms and smart contract, and the legal validity of both has yet to be verified in mainstream judicial systems.

In terms of technical architecture and market positioning, PGI is essentially an infrastructure, emphasizing "technological neutrality" and allowing compatibility with emerging solutions such as distributed ledger technology. The description of WGC may imply that this solution is more likely to be a permissioned consortium chain operated collaboratively by core participants, aimed at digitizing and automating the clearing processes between institutions. Its target profile is a highly closed institutional market with extremely high demands for trust and efficiency, specifically addressing the clearing and collateral issues among large institutions in the London OTC market.

XAUT and PAXG are more like products, both issued on public chains like Ethereum, becoming a class of permissionless assets that any user can hold, transfer, and trade through a crypto wallet without going through the complex KYC/AML processes of TradFi institutions. Therefore, they target the DeFi and retail markets, serving crypto-native protocols and individual investors.

In terms of core use cases, the primary goal of WGC is to unlock the potential of gold as institutional-grade collateral. By addressing the legal and practical pain points of gold in collateral conditions, PGI will enable gold to be efficiently used in scenarios such as repurchase and lending, thereby revitalizing trillions of dollars of existing assets. The WGC CEO stated that gold needs to transition from a "non-yielding" asset to a type of "yielding" asset.

XAUT and PAXG are primarily focused on empowering the crypto ecosystem. As stablecoins pegged to gold, they can be used for lending, liquidity provision, volatility hedging, and portfolio diversification in DeFi. The use cases of the two solutions appear similar on the surface, but their underlying logic is entirely different. The mission of PGI is to transform a long-standing, large-scale TradFi market; XAUT and PAXG are positioned in the rapidly growing DeFi market.

PGI is an attempt by TradFi to "extract its essence" from blockchain technology, adopting a digital form while also adhering to the essence of TradFi. Such selective innovation may maximize the advantages of integrating digital technology into the existing framework while minimizing regulatory risks.

PGI, PAXG, and XAUT may potentially form a multidimensional, multi-layered "golden ecosystem." PGI leads the institutional market, focusing on addressing high-value, large-scale settlement and collateral issues; PAXG, with its compliance advantages, has the opportunity to become a bridge between mainstream institutions and the crypto market, providing a reliable and regulated channel between TradFi and DeFi; XAUT can continue to focus on the retail and crypto-native market, securing a place with its high liquidity and broad compatibility.