Is Aave Taking Over Tokenized Gold In DEFI?

Aave V3 has quietly established itself as the dominant venue for tokenized gold in decentralized finance, now accounting for more than half of all tokenized gold deposited across DeFi lending protocols, according to Token Terminal data.

PAXG and XAUT Anchor Aave's Gold Market

Two assets are driving that position: PAX Gold (PAXG) and Tether Gold (XAUT). PAXG has been accepted as collateral on Aave V3's Ethereum deployment since the protocol launched, giving users the ability to borrow stablecoins against their tokenized gold holdings. Governance proposals to integrate XAUT into the core instance of Aave V3 began circulating in mid-2025, and adding a second major gold token expanded the protocol's appeal to a wider pool of users who might prefer one issuer over another.

A key piece of Aave's architecture made this expansion possible. Aave V3's isolation mode, introduced in 2022, lets the protocol onboard newer or less liquid assets with tighter risk parameters, essentially ring-fencing potential problems before they can spread. That risk-controlled approach has helped attract gold-backed assets without exposing the broader protocol to outsized volatility.

PAXG is backed by London Good Delivery gold bars held in Brinks vaults, while XAUT is backed by gold stored in Swiss vaults. Both issuers publish attestations, but the trust model is fundamentally different from holding a purely decentralized asset like ETH.

A Stress Test Passed, But Adoption Gap Remains Wide

On March 23, Aave processed its largest cluster of XAUT liquidations without disruption during a sharp sell-off in gold, demonstrating that tokenized bullion can function reliably as DeFi collateral under market stress.

Despite that resilience, the broader adoption story remains limited. Tokenized gold spot trading volume reached $90.7 billion in the first quarter as gold futures rallied above $5,600 per troy ounce, yet only about $63 million worth of XAUT and PAXG is currently posted as collateral on Aave V3 and Morpho. That is just 1.5% of the tokens' combined $4.2 billion market capitalization.

The main remaining challenge for tokenized gold is not performance in DeFi, but scaling collateral adoption across protocols. The contrast between trading activity and collateral deployment is at the center of RedStone's assessment: despite strong market interest in tokenized bullion, the share actually put to work in lending markets remains small.

Aave's commanding share of a still-nascent segment puts it in a strong position if collateral usage does broaden. For now, the gap between tokenized gold's trading volumes and its DeFi footprint remains the defining feature of this market.

Sources:
Crypto Briefing: Aave becomes the dominant DeFi venue for tokenized gold deposits
CryptoBreaking: Tokenized Gold Clears DeFi Stress Test as Collateral Use Stays Under 2%