How to Buy Gold Onchain

Gold is on a tear, up 15% in just 6 months, outpacing the S&P 500. With rising concerns over inflation, investors are turning to gold as a hedge. But what if you could own gold without the hassle of physical storage?

Today, let's rundown how you can buy gold onchain.

While Bankless readers are likely well aware of the benefits of self-custodying their crypto, but when it comes to self-custodying physical gold over tokenized versions, don't be so quick to shrug off buying gold onchain. There are some big advantages!

Transportability and Security 🔐

Depending on how much gold you are buying, it can be cumbersome to transport it from one place to another! Additionally, there are security concerns like where you can store your gold securely without having to worry about it being stolen.

Tokenized gold solves both issues since your holdings remain in a digital wallet At most, you would need to carry a cold wallet for added security. It is also more discreet than owning physical gold, making it less likely for someone to try and steal your recovery phrase or cold wallet. 

Minimal Storage Costs 💵

When storing physical gold, people will usually either have a bank hold it or have some sort of safe within their home. Banks charge variable storage fees based on the amount of gold held, and buying a safe within your home can be very expensive depending on the type of security you desire. By holding gold onchain, you don’t have to pay anything to hold the tokenized version. You may have a small safe to hold your recovery phrase or cold wallet, but it is significantly more cost-effective than holding physical gold. 

Instant Redemptions and No Premiums 🤑

When gold reaches a point that you feel you should sell, it can be a hassle to sell gold in person. When trying to get the fair market value of your gold, you’d have to find a bank that is willing to buy the gold which can be difficult as not all banks buy gold. But if you go to a pawn shop to sell your gold, they will usually charge a hefty premium, eating into your gains. With tokenized gold, you may incur a redemption fee on the platform where you purchased it or a swap fee on platforms like Uniswap or Balancer. However, this is likely a cheaper and more efficient way than trying to redeem it for its USD value in person. 

Now that we have broken down the benefits of holding tokenized gold, here are some platforms and issuers that you can use to buy it! 👇

Paxos | PAXG

Paxos offers several pegged tokens, with its most notable being PAXG, a gold-backed token tied to the price of gold. Additionally, each PAXG token is backed by 1 fine troy ounce of gold, which is stored in vaults managed by the London Bullion Market Association (LBMA) in London. 

PAXG holders can redeem their tokens for physical gold bars, which will be delivered by the LBMA, or for the equivalent in USD if they KYC with Paxos. The minimum amount of tokens you must hold to redeem for gold bars is 430 PAXG, ~$1.3M, while you can redeem as little as .03 PAXG, ~$90, for USD.

Tether | XAUT

Tether offers a similar system to Paxos in that the price of the XAUT token is pegged and backed by 1 fine troy ounce of gold which is stored in a vault by a 3rd party custodian. A key difference between the two is that if you would like to redeem XAUT for gold or USD, the minimum order size to do this is 50 XAUT, ~$150K.

However, concerns around the safety of XAUT have been raised by 3rd party rating companies like Bluechip. XAUT received an overall grade of D from Bluechip, which had critical words regarding the asset's stability, management, and governance, while PAXG received an A from the same agency.

Ostium

Ostium operates a little differently than the other projects in that it is a perpetuals trading platform that allows users up to 150x leverage on gold. It also has no gold token, and holding are’t redeemable for physical gold. Ostium pulls the price of gold from an RWA oracle that they built themselves.

Bitcoin vs. Gold 🤺

Bitcoin and gold often occupy different risk profiles and often showcase divergent volatility, they do of course share similarities. With Bitcoin and gold both being scarce assets that are not controlled by singlular entities, Bitcoin has often adopted “digital gold” as a branding motto. However, when investors decide to begin putting capital into gold or Bitcoin, the market environments are two different scenarios.

For example, investors have monitored the correlation between the S&P 500 and Bitcoin’s price and have noted that there is indeed correlation between the two. So when there is a bullish sentiment around the stock market, investors may begin to re-up on Bitcoin. Gold often behaves in the opposite manner. The current global landscape serves as a prime example. Concerns around Trump’s tariffs and how much it will affect inflation have left the stock market in a state of uncertainty. This has led to investors flocking to gold as a way to store value, driving up gold prices significantly over the past 60 days.

With multiple onchain gold options available, investors now have an easy, secure way to gain exposure to gold. Which option fits your strategy best?