Crypto investors are shifting capital into tokenized gold as digital asset markets stagnate, driving record-breaking inflows for Paxos Gold (PAXG) in January. According to data from DefiLlama, PAXG, which is backed by physical gold stored in LBMA vaults in London, attracted over $248 million in fresh capital during the month. This surge lifted PAXG's market capitalization above $2.2 billion, making it the second-largest gold token behind Tether Gold (XAUT).
The inflows coincide with a historic rally in physical gold prices, which crossed $5,300 per ounce in late January, marking a 22% gain for the month and a 90% increase over the past year. This starkly contrasts with Bitcoin's performance, which has declined over 10% in the same yearly period, alongside broader crypto market weakness.
James Harris, CEO of the crypto yield platform Tesseract Group, explained the shift: "The growing traction of tokenized gold has improved gold’s utility, particularly around transferability and divisibility, while Bitcoin continues to trade more like a risk asset in periods of macro uncertainty." Investors are seeking protection in an uncertain macroeconomic environment through blockchain-based assets that offer the safe-haven properties of gold.
Tokens like PAXG and XAUT provide fractional ownership of physical gold, enabling blockchain-based transfers and compatibility with crypto wallets. This allows investors to hold a traditional store of value without the logistical hurdles of physical storage. The total market for tokenized gold has now reached an all-time high of over $5.5 billion, according to CoinGecko, fueled by both price appreciation and significant capital inflows.
The tokenization model offers several advantages, including 24/7 trading, divisibility down to small amounts, reduced transaction costs, and the ability to use the tokens within DeFi ecosystems for staking, lending, or as collateral. PAXG maintains regular audits of its gold reserves, and holders can redeem tokens for physical gold if they meet minimum requirements.
