Tokenized gold (PAXG, XAUT): what it is and where the arbitrage is

Tokenized gold (PAXG, XAUT): what it is and where the arbitrage is

Tokenized gold is a cryptocurrency backed by physical metal. You can buy it on a crypto exchange in a couple of minutes and trade it around the clock, including on weekends.

The best-known tokens are PAXG and XAUT. Below, we look at how they work, why their price does not always match spot gold and where arbitrage trades appear because of it.

What tokenized gold is

A token is a digital claim on a certain amount of gold held by the issuer. For PAXG and XAUT, one token corresponds to one troy ounce.

The issuer keeps the metal in a vault, issues tokens against this stock and promises to redeem them in gold or cash. That is why the token's price should stay close to the price of an ounce on the traditional market.

How PAXG differs from XAUT

Broadly speaking, the models are similar. The difference lies in the issuer and jurisdiction: PAXG is issued by Paxos, a company supervised by the New York State financial regulator, while XAUT is linked to Tether, and the metal behind it is stored in Switzerland.

In our view, for an arbitrage trader the difference between the tokens matters less than the liquidity of a specific pair on a specific exchange. That is what determines how much can be pushed through a trade.

Why the PAXG price differs from the gold price

The token and the metal are linked through redemption, but this link is not instant. Deviations arise for several reasons.

• trading hours: the traditional gold market is closed on weekends, while crypto exchanges are always open
• weekend news: the token reacts immediately, while spot gold reacts only after the open
• liquidity: the order book for gold tokens on many exchanges is thinner than for Bitcoin
• premium and discount: with high demand, the token trades above the metal, and in a sell-off below it
• cost of redemption: thresholds and fees prevent the gap from closing instantly

From what we see, the tokens drift from the metal most noticeably on weekends and in the first hours after the traditional market opens. On weekdays, the difference is usually more modest.

Where the arbitrage is in tokenized gold

Between crypto exchanges

The most accessible trade is the same token on different exchanges. If PAXG is more expensive on one venue than on another, you can buy where it is cheaper and sell where it is more expensive.

It is more convenient to keep a reserve of the token and stablecoins on both exchanges so you do not have to wait for a transfer. Then the trade closes simultaneously, and the balance is evened out later.

Between PAXG and XAUT

Both tokens are pegged to one ounce, so their prices should be close. When one token moves to a premium over the other, you can trade the convergence.

Against the traditional market

The "token versus a gold futures contract or gold perp" trade is more complex and more expensive. If the token rose higher over the weekend, it is sold while a gold instrument is bought at the same time, counting on convergence after the market opens.

How to calculate PAXG arbitrage: a hypothetical example

The numbers below are hypothetical and serve only to illustrate the calculation. Suppose PAXG costs 3,012 USDT on exchange A and 3,027 USDT on exchange B.

Of the fifteen dollars of difference, less than half remains. We believe that with gold tokens, slippage often eats more than the quotes suggest, so the volume in the order book should be checked before entry.

Risks of tokenized gold

• issuer risk: the token is worth as much as the issuer's promise to redeem it in metal
• redemption: physical delivery has a threshold and fees, so it is hard for a small holder to close the gap through the issuer
• liquidity: on small exchanges, a large position cannot be executed without moving the price
• freezing: the issuer can technically block tokens at a specific address
• weekends: the gap may not converge by the open and may even widen

Our tools

Gaps in PAXG and XAUT appear on different venues at different times, so they are easier to catch when all exchanges are visible at once. Our arbitrage screener keeps dozens of venues in one window, refreshes quotes every second and shows each gap together with the volume actually behind it. The spread calculator helps you check what survives fees, network costs and slippage at your size. The bot is fully manual. It never connects to your exchange API keys.

To test the tools on a live market, ArbitrageScanner offers one day of free access to the whole ecosystem.

FAQ (Frequently Asked Questions)

1. What is PAXG in simple terms?

It is a token backed by one troy ounce of gold held by the issuer Paxos. It is bought and sold on crypto exchanges, and its price stays close to the price of the metal.

2. How does XAUT differ from PAXG?

Both tokens are backed by an ounce of gold. The difference lies in the issuer and jurisdiction: PAXG is issued by Paxos, while XAUT is linked to Tether and stores the metal in Switzerland.

3. Why is the PAXG price higher or lower than the gold price?

The token trades around the clock, while the traditional gold market is closed on weekends. Add a thin order book, a premium when demand is high and the cost of redemption.

4. Can you make money on PAXG arbitrage?

Gaps between exchanges and between tokens do occur, but they are often small. Before entering, you need to account for fees, slippage and transfer time.

5. Is it safe to hold gold in tokens?

The token depends on the reliability of the issuer and the vault. The issuer can freeze tokens at an address, and redemption in metal is not available to every holder.

Conclusion

Tokenized gold is a claim on metal held by an issuer that can be traded around the clock. The price of PAXG and XAUT usually stays close to an ounce, but drifts from it on weekends, on a thin order book and during demand spikes.

These deviations are the basis for trades between exchanges, between tokens and against the traditional market. The gap is often modest, so fees, slippage and trust in the issuer are what decide the outcome.

IMPORTANT! We are software developers. We do not give recommendations or promises of earnings and we do not advise you to invest your money anywhere. Our software is fully manual, all your money stays under your own control. We show examples of how our clients have earned on arbitrage in the past, but we do not advise repeating those actions one to one. Your earnings depend solely on your own actions and on market factors.