Paxos Labs expands investment options for gold-backed crypto

• Key insight: Paxos Labs has released a new digital asset for tokenized gold investing. 
• What's at stake: Amid geopolitical and economic pressure, investors are looking for new hedges. 
• Expert quote: "With everything that's going on in the world, there's going to be a demand for gold and tokenized gold." —Paxos Labs' Bhau Kotecha
  

 As the uses of tokenization proliferate, gold is emerging as a potential target for payment firms, given the metal's popularity as a hedge against risks from tariffs, the Iran war and other economic challenges. 

"With everything that's going on in the world, there's going to be a demand for gold and tokenized gold," Bhau Kotecha, co-founder of Paxos Labs, told American Banker.

Paxos Labs has launched PaxGy, a gold-backed token that is designed to accrue value in ounces of gold by deploying its underlying reserves in the institutional gold leasing market.

Paxos Labs, a 2025 spinoff from blockchain fintech Paxos, is among financial institutions such as HSBC that are using cryptocurrency-related tools to improve access to gold as the precious metal attracts more investors.

"Blockchain is designed to tokenize assets. Stablecoins are the first and most obvious, but other assets like stocks, bonds and in this case, gold are also ripe for tokenization," Tony DeSanctis, a vice president at Cornerstone Advisors, told American Banker.

Digging for gold

PaxGy is related to PAXG, a cryptocurrency issued by the Paxos Trust Company, which is regulated by the New York State Department of Financial Services and the OCC.  

Each PAXG is equal to one fine troy ounce of physical gold, or about 31 grams, and is pegged to real gold stored in specialized vaults in London. "Fine troy" refers to the amount of gold in the ounce, typically close to 100% (a "regular ounce" would be about 28 grams). Paxos Labs deploys PaxGy's reserves to gold borrowers.

As these borrowers lease gold, the value of PaxGy goes up (or down) related to the base digital asset PAXG. PaxGy differs from PAXG in that PaxGy's value is tied to lending rather than the basic value of gold — so there's an opportunity for extra returns via PaxGy, but also more risk based on the performance of the underlying loan.

The idea of investing in gold lending is not new, according to Kotecha, who contends gold has been lent for "thousands of years" and institutional gold holders have earned returns on their bullion reserves for decades. But that ability to earn returns off of gold-based lending is largely not available to consumers and other smaller parties who hold gold, he said. As PaxGy builds value it can be redeemed for PAXG and then transferred to traditional currency. 

"There are ways to generate returns on gold, but there is a high barrier in terms of institutional backing or capital that you need," Kotecha said. "This makes this type of investing more accessible."

Worth its weight?

As geopolitical tensions that followed President Trump's tariffs continue in a second year, gold's status as a safe haven is making it more valuable. 

The price of gold is about $4,100 per ounce, down from its recent high of more than $5,100 in June, but up from about $3,200 in April 2025, at the time of Trump's initial tariff announcement. Gold traded between $1,800 and $2,000 per ounce for most of the early 2020s. 

Tokenized gold is a digital representation of physical gold issued and recorded on a distributed ledger. Each digital token corresponds to a specific unit of physical gold stored in audited vaults.

Investment options such as gold exchange-traded funds, or ETFs, enable the asset to be bought, sold, transferred or self-custodied around the clock. Tokenization reduces gold into smaller units, opening access to investors who cannot purchase an entire bar.

Tokenized gold had a market cap of about $6 billion at the end of August, according to BitTrue, trailing only tokenized U.S. Treasuries, which had a market cap of about $12 billion. Tether Gold and PAXG account for about $5 billion, with PAXG's market cap coming in at about $2 billion. 

Much like stablecoins or tokenized deposits, gold tokens are viewed as a hedge from volatility — with gold acting as the reserve instead of U.S. dollars in the case of a stablecoin or a direct claim on a bank deposit in the case of a tokenized deposit. 

Read more:

• As fintechs nab bank charters, what's happening to BaaS?
• Overheated data center knocked 23 credit unions offline
• Chris Britt still says banking is broken, but Chime can fix it
• Credit unions bulk up a business that banks long dominated

"By guaranteeing the ownership via blockchain, it is easier to transact and trade physical assets without the traditional hassles of custody and moving of physical assets," DeSanctis said.
The use of gold as an inflation hedge is well understood; the use of digital asset technology makes it easier to buy gold for that purpose, he said. 

"This is likely just the beginning of tokenized assets," DeSanctis said.