Overview
Tether Gold (XAUT) launched in January 2020 as Tether's entry into tokenized commodities. Each XAUT token represents ownership of one fine troy ounce of London Good Delivery gold, stored in secured vaults in Switzerland. The gold is allocated — meaning specific gold bars are assigned to token holders, distinguishable by serial number, purity, and weight.
XAUT is issued on Ethereum (ERC-20) and Tron (TRC-20). Token holders can verify their allocated gold through Tether's website by providing their on-chain address. The token trades near the spot price of gold, with minor premiums or discounts depending on market conditions and demand.
The product addresses a real market need — crypto-native users wanting gold exposure without traditional financial intermediaries. However, XAUT inherits the transparency and trust concerns that follow Tether as an organization. While USDT's reserves have been a perennial debate, XAUT's gold backing is arguably simpler to verify (physical gold in specific vaults), though Tether's attestation track record still raises questions for skeptics.
XAUT's market cap sits at approximately $500M-$800M, making it the second-largest tokenized gold product behind Paxos's PAXG.
Peg Stability
Gold Price Tracking
XAUT tracks the price of physical gold closely, typically within 0.1-0.5% of the spot price. The peg mechanism is straightforward: each token is redeemable for physical gold (minimum 50 XAUT, or approximately $100K+), creating an arbitrage floor. When XAUT trades below gold spot, large holders can redeem for physical gold; when above, Tether can mint new XAUT against deposited gold.
Market Dynamics
Trading volume for XAUT is moderate, concentrated on major centralized exchanges and DEX markets. During gold market volatility, XAUT spreads can widen temporarily as market makers adjust. Overall peg maintenance has been reliable, benefiting from the relatively low volatility of gold compared to crypto assets.
Redemption Mechanism
Physical gold redemption is available for qualified holders meeting minimum thresholds. The redemption process involves identity verification and coordination with vault operators. This is not instant — physical gold delivery takes days to weeks — but the redemption option provides the fundamental backing guarantee.
Collateralization
Physical Gold Backing
XAUT claims 1:1 backing by physical gold stored in Swiss vaults. The gold is held in London Good Delivery bars (400 oz, ~$800K each), with fractional ownership allocated to individual tokens. Tether publishes a list of gold bars backing XAUT, including bar identifiers and weights.
Attestation
Tether provides periodic attestations of gold reserves, though the attestation process has faced the same scrutiny as USDT's reserve reporting. Independent third-party attestations by auditing firms have been published, but the frequency and depth of verification remain points of debate.
Custody
Gold is stored in secured vaults in Switzerland operated by professional custodians. The choice of Swiss jurisdiction provides regulatory stability, insurance frameworks, and established precious metals infrastructure. However, users ultimately trust Tether's representations about custody arrangements.
Security
Smart Contract
XAUT's smart contract is relatively simple — a standard ERC-20 token with mint/burn functions controlled by Tether. The simplicity reduces smart contract risk, but the centralized mint/burn authority means Tether has full control over token supply.
Centralization Risks
Tether controls all aspects of XAUT: minting, burning, gold custody relationships, attestation, and compliance. A blacklist function allows Tether to freeze tokens at specific addresses. This level of centralization means users trust Tether entirely for the token's integrity.
Tether Organizational Risk
XAUT inherits all organizational risks associated with Tether: regulatory actions against the company (Tether has previously settled with the CFTC), jurisdictional risk (Tether operates from the British Virgin Islands), and counterparty risk if Tether faces operational disruption. These are not theoretical — Tether has faced regulatory scrutiny repeatedly.
Decentralization
Fully Centralized
XAUT is fully centralized. Tether controls issuance, redemption, compliance, custody relationships, and has the ability to freeze tokens. There is no governance mechanism, no DAO, and no community input into protocol operations. This is by design — tokenized physical assets inherently require a centralized custodian.
Censorship Capability
The blacklist function means XAUT can be censored at the token level. Tether can and has frozen tokens in response to legal requests. Users seeking censorship-resistant gold exposure would need to look at synthetic alternatives (which carry different risks).
Regulatory Dependency
XAUT operates within a regulatory framework that requires KYC for minting/redemption and compliance with sanctions requirements. This is appropriate for a regulated asset but means XAUT is not accessible to all users and can be restricted.
Adoption
Market Position
XAUT is the second-largest tokenized gold token by market cap, behind PAXG. Market cap of $500-800M represents meaningful adoption but is dwarfed by USDT's market cap. The tokenized gold market is growing but remains niche compared to tokenized USD.
Use Cases
Primary use cases include portfolio diversification (gold exposure within crypto portfolios), cross-border gold transfer, and DeFi collateral (limited). XAUT is listed on major exchanges and has moderate trading liquidity.
DeFi Integration
XAUT has limited DeFi integration compared to USD stablecoins. Some lending protocols accept XAUT as collateral, and DEX pools exist on Ethereum. However, gold tokens are not widely integrated into DeFi due to lower demand compared to dollar-denominated assets.
Risk Factors
- Tether organizational risk: All risks associated with Tether as a company — regulatory actions, operational disruption, governance failures — directly affect XAUT holders.
- Attestation trust: Verifying physical gold reserves requires trust in Tether's attestation process, which has faced historical scrutiny.
- Centralization: Complete centralized control means users have no recourse if Tether acts against their interests (beyond legal action).
- Physical custody risk: While Swiss vault custody is industry-standard, theft, seizure, or natural disaster affecting vaults would impact backing.
- Liquidity limitations: Trading liquidity is significantly lower than USD stablecoins, leading to wider spreads during stress.
- Redemption barriers: Physical gold redemption requires large minimums, identity verification, and extended timelines, limiting the practical backing guarantee for small holders.
Conclusion
Tether Gold provides a functional, relatively straightforward product — tokenized physical gold with a major issuer. The gold tracking is accurate, the physical backing mechanism is clear, and the product serves a genuine need for crypto-native gold exposure. For users who trust Tether as a counterparty, XAUT is a reasonable choice.
The 5.6 score reflects strong peg stability and collateralization, weighed down significantly by centralization (inherent to the product type) and the organizational trust concerns that follow Tether. XAUT cannot score highly on decentralization — it is not designed to — and the security score reflects Tether's organizational risk rather than smart contract risk. Users choosing between XAUT and PAXG should weigh Tether's market presence against Paxos's regulatory advantages.