Why Gold Remains Important

In 2025, gold has once again made headlines, reaching new all-time highs driven by surging demand for safe-haven assets. The price of gold broke through $3,000 per ounce for the first time, marking a strong return of this "king of precious metals." Concerns about the devaluation of fiat currencies and global instability have led investors to flock back to gold.

Bitcoin is often referred to as "digital gold," leading many to question whether physical gold still matters. However, the latest data speaks for itself: gold remains crucial for asset diversification and stability. As of March 2025, gold's annual return rate reached 36%, outperforming major stock indices as well as Bitcoin.

Lower Volatility than Bitcoin

Compared to Bitcoin's wild price swings, changes in the price of gold are much more moderate. For instance, as of 2024, Bitcoin's annual volatility was about 47%, while gold's was only 12%. This means that Bitcoin's price fluctuations can average nearly four times that of gold. This difference is crucial for investors who focus on risk control.

We have seen this at the beginning of 2025: while tech stocks (Nasdaq Index) fell nearly 15% within a few weeks, gold remained relatively flat (up about 1%), while Bitcoin fell about 20%, moving almost in sync with the stock market. Gold's low volatility makes it a valuable asset for preserving capital during market turmoil, while Bitcoin behaves more like a high-beta risk asset.

Surging Demand for Safe-Haven Assets: An Analysis of Tokenized Gold and Yield Opportunities

Low Correlation with Bitcoin

In the recent market cycle, the trends of gold and Bitcoin have diverged. Over the past year, gold has steadily risen, driven by inflation concerns and war tensions, reaching new highs; Bitcoin, on the other hand, has fluctuated within a wide range, its trend more influenced by investor risk preferences. Notably, gold has a low correlation with traditional assets, even negative, which is ideal for diversification in asset allocation. In fact, gold has shown a negative correlation with Bitcoin, meaning that holding both can further enhance the diversification of an investment portfolio.

Tokenized Gold in 2025

One of the most exciting developments is that gold itself has joined the wave of the blockchain revolution. So-called "tokenized gold," digital tokens fully backed by physical gold, is experiencing rapid growth. In March 2025, the market value of gold-backed cryptocurrency tokens reached a record high of $1.4 billion. This sector is mainly dominated by two tokens: PAX Gold (PAXG) and Tether Gold (XAUt). These tokens allow investors to hold gold in digital form, combining the stability of gold with the flexibility of cryptocurrency assets.

PAXG (Paxos Gold)

PAX Gold (PAXG) is issued by Paxos Trust Company, a regulated financial institution based in New York. Each PAXG token represents one ounce of refined gold stored in London Bullion Market Association (LBMA) certified vaults. Importantly, Paxos operates under strict regulation—the token is fully backed by physical gold on a 1:1 ratio and is subject to third-party monthly audits to verify its reserves. Paxos is authorized by the New York State Department of Financial Services (NYDFS), thus offering strong compliance and providing full confidence to holders.

XAUt (Tether Gold)

Tether Gold (XAUt) is another major gold-backed token issued by TG Commodities, a company associated with Tether. Each XAUt represents one ounce of gold stored in Swiss vaults that meet London Good Delivery standards. As of 2025, XAUt has a market value of about $770 million.

However, XAUt's regulatory structure differs from PAXG's. In 2023, Tether relocated its gold token business under Salvadoran regulation, with TG Commodities obtaining a stablecoin issuance license in El Salvador, thus operating within the country's regulatory framework. Tether Gold regularly releases gold reserve reports and claims its tokens are fully backed by physical gold, but unlike Paxos, it has not yet undergone a complete independent audit of its reserves. This has raised some market concerns about its transparency.

Yield Opportunities in DeFi

In addition to simply buying and holding, tokenized gold has also opened up new use cases in decentralized finance (DeFi). Crypto investors can deploy gold-backed tokens into various yield-generating strategies, making gold an asset that can generate passive income. Historically, gold has typically just lain in vaults, generating little to no income; now, without moving physical gold, DeFi protocols can create returns.

Liquidity Pools and Automated Market Makers (AMMs)

For example, the PAXG/USDC pool on Uniswap allows users to trade between tokenized gold and the US dollar. Liquidity providers (LPs) in this pool can profit by earning transaction fees.

This mechanism allows LPs to earn passive income while maintaining exposure to gold, which is particularly attractive during periods of high gold interest and active trading.

Impermanent Loss (IL)

Impermanent loss (IL) is a core concept in DeFi, especially for users who provide liquidity on automated market makers (AMMs) like Uniswap. When the prices of the two tokens in a liquidity pool change relative to holding them separately, LPs may incur a decrease in asset value, known as "impermanent loss." It is called "impermanent" because if prices return to their original ratio, the loss may decrease or disappear; however, if liquidity is withdrawn while prices are divergent, this loss becomes "permanent."

The magnitude of IL mainly depends on two factors: the volatility and correlation of the paired assets.

In the PAXG/USDC pool, one side is the stablecoin PAX Gold (PAXG) pegged to the price of gold, and the other side is the stablecoin USDC pegged to the US dollar. Since gold prices are much less volatile than crypto assets, and USDC always maintains a value of $1, the price ratio between these assets is relatively stable, significantly reducing the risk of impermanent loss.

In contrast, in the PAXG/WETH pool, PAXG is paired with WETH. PAXG has a smaller fluctuation, while the ETH market is highly volatile, sometimes rising or falling by 20-50% in a short period. This sharp fluctuation triggers the AMM's "constant product" algorithm, causing the pool's assets to rebalance, reducing the proportion of the performing well asset (such as PAXG when it rises) and increasing the proportion of the poorly performing asset (such as ETH). Ultimately, LPs are left with fewer high-value assets than simply holding the assets would have resulted in, leading to a larger scale of impermanent loss.

Why Gold Remains Important

In 2025, gold has once again made headlines, reaching new all-time highs driven by surging demand for safe-haven assets. The price of gold broke through $3,000 per ounce for the first time, marking a strong return of this "king of precious metals." Concerns about the devaluation of fiat currencies and global instability have led investors to flock back to gold.

Bitcoin is often referred to as "digital gold," leading many to question whether physical gold still matters. However, the latest data speaks for itself: gold remains crucial for asset diversification and stability. As of March 2025, gold's annual return rate reached 36%, outperforming major stock indices as well as Bitcoin.

Lower Volatility than Bitcoin

Compared to Bitcoin's wild price swings, changes in the price of gold are much more moderate. For instance, as of 2024, Bitcoin's annual volatility was about 47%, while gold's was only 12%. This means that Bitcoin's price fluctuations can average nearly four times that of gold. This difference is crucial for investors who focus on risk control.

We have seen this at the beginning of 2025: while tech stocks (Nasdaq Index) fell nearly 15% within a few weeks, gold remained relatively flat (up about 1%), while Bitcoin fell about 20%, moving almost in sync with the stock market. Gold's low volatility makes it a valuable asset for preserving capital during market turmoil, while Bitcoin behaves more like a high-beta risk asset.

Surging Demand for Safe-Haven Assets: An Analysis of Tokenized Gold and Yield Opportunities

Low Correlation with Bitcoin

In the recent market cycle, the trends of gold and Bitcoin have diverged. Over the past year, gold has steadily risen, driven by inflation concerns and war tensions, reaching new highs; Bitcoin, on the other hand, has fluctuated within a wide range, its trend more influenced by investor risk preferences. Notably, gold has a low correlation with traditional assets, even negative, which is ideal for diversification in asset allocation. In fact, gold has shown a negative correlation with Bitcoin, meaning that holding both can further enhance the diversification of an investment portfolio.

Tokenized Gold in 2025

One of the most exciting developments is that gold itself has joined the wave of the blockchain revolution. So-called "tokenized gold," digital tokens fully backed by physical gold, is experiencing rapid growth. In March 2025, the market value of gold-backed cryptocurrency tokens reached a record high of $1.4 billion. This sector is mainly dominated by two tokens: PAX Gold (PAXG) and Tether Gold (XAUt). These tokens allow investors to hold gold in digital form, combining the stability of gold with the flexibility of cryptocurrency assets.

PAXG (Paxos Gold)

PAX Gold (PAXG) is issued by Paxos Trust Company, a regulated financial institution based in New York. Each PAXG token represents one ounce of refined gold stored in London Bullion Market Association (LBMA) certified vaults. Importantly, Paxos operates under strict regulation—the token is fully backed by physical gold on a 1:1 ratio and is subject to third-party monthly audits to verify its reserves. Paxos is authorized by the New York State Department of Financial Services (NYDFS), thus offering strong compliance and providing full confidence to holders.

XAUt (Tether Gold)

Tether Gold (XAUt) is another major gold-backed token issued by TG Commodities, a company associated with Tether. Each XAUt represents one ounce of gold stored in Swiss vaults that meet London Good Delivery standards. As of 2025, XAUt has a market value of about $770 million.

However, XAUt's regulatory structure differs from PAXG's. In 2023, Tether relocated its gold token business under Salvadoran regulation, with TG Commodities obtaining a stablecoin issuance license in El Salvador, thus operating within the country's regulatory framework. Tether Gold regularly releases gold reserve reports and claims its tokens are fully backed by physical gold, but unlike Paxos, it has not yet undergone a complete independent audit of its reserves. This has raised some market concerns about its transparency.

Yield Opportunities in DeFi

In addition to simply buying and holding, tokenized gold has also opened up new use cases in decentralized finance (DeFi). Crypto investors can deploy gold-backed tokens into various yield-generating strategies, making gold an asset that can generate passive income. Historically, gold has typically just lain in vaults, generating little to no income; now, without moving physical gold, DeFi protocols can create returns.

Liquidity Pools and Automated Market Makers (AMMs)

For example, the PAXG/USDC pool on Uniswap allows users to trade between tokenized gold and the US dollar. Liquidity providers (LPs) in this pool can profit by earning transaction fees.

This mechanism allows LPs to earn passive income while maintaining exposure to gold, which is particularly attractive during periods of high gold interest and active trading.

Impermanent Loss (IL)

Impermanent loss (IL) is a core concept in DeFi, especially for users who provide liquidity on automated market makers (AMMs) like Uniswap. When the prices of the two tokens in a liquidity pool change relative to holding them separately, LPs may incur a decrease in asset value, known as "impermanent loss." It is called "impermanent" because if prices return to their original ratio, the loss may decrease or disappear; however, if liquidity is withdrawn while prices are divergent, this loss becomes "permanent."

The magnitude of IL mainly depends on two factors: the volatility and correlation of the paired assets.

In the PAXG/USDC pool, one side is the stablecoin PAX Gold (PAXG) pegged to the price of gold, and the other side is the stablecoin USDC pegged to the US dollar. Since gold prices are much less volatile than crypto assets, and USDC always maintains a value of $1, the price ratio between these assets is relatively stable, significantly reducing the risk of impermanent loss.

In contrast, in the PAXG/WETH pool, PAXG is paired with WETH. PAXG has a smaller fluctuation, while the ETH market is highly volatile, sometimes rising or falling by 20-50% in a short period. This sharp fluctuation triggers the AMM's "constant product" algorithm, causing the pool's assets to rebalance, reducing the proportion of the performing well asset (such as PAXG when it rises) and increasing the proportion of the poorly performing asset (such as ETH). Ultimately, LPs are left with fewer high-value assets than simply holding the assets would have resulted in, leading to a larger scale of impermanent loss.