Today Aave Labs submitted a response to the UK Financial Conduct Authority’s Call for Input, Tokenised Gold: Opportunities and risks for UK wholesale markets. The FCA asked how tokenised gold could improve the way gold is held, traded and used as collateral in London, one of the world’s most important gold markets, and what regulatory clarity is needed for that to happen. The full letter is available here.
We kept our response focused on the area where we have direct operating experience: how tokenised gold behaves when it is used as collateral.
Collateral mobility is already live
Two tokenised gold assets are available as collateral on the Aave Protocol today: PAX Gold (PAXG) and Tether Gold (XAUt). Users supply them as collateral and borrow stablecoins against them, 24 hours a day, every day of the year. Positions are valued, monitored and, where necessary, liquidated automatically under parameters published in advance. As of October 2026, approximately £52 million of tokenised gold had been supplied to the protocol.
The FCA’s paper describes a long-standing trade-off in the gold market. Allocated gold gives owners certainty but is slow and costly to mobilise. Unallocated gold moves easily but introduces counterparty exposure. Tokenisation removes that trade-off. A holder of a token representing allocated gold can pledge it as collateral at any hour, obtain liquidity in minutes, and keep their ownership interest. When a position is liquidated, repayment and transfer of the token settle together in a single atomic transaction, so neither can happen without the other. That is the same principle as delivery versus payment, operating today.
This is why we believe collateral mobility is one of the most important use cases for tokenisation. The point of putting real-world assets onchain is not just to trade them, but to finance them.
What still needs to be solved
Operational design is no longer the main constraint. Legal certainty is. The UK’s Property (Digital Assets etc) Act 2025 was an important step, confirming that digital assets can be owned as personal property. But it leaves the courts to define the details, and that case law will take years to develop. Clearer rules on how tokenised assets work as collateral, including the rights a token gives its holder in the underlying gold, would allow far more institutions to use tokenised gold with greater certainty.
Our response also highlights practical lessons from running gold collateral markets:
- Valuation. Tokenised gold assets trade continuously, but the physical gold market does not. Standards should address how collateral is valued outside market hours.
- Liquidity. Redeeming for physical gold requires a full bar, so most collateral is realised in the secondary market. Market depth matters as much as redemption rights.
- Issuer controls. Every venue that accepts a tokenised gold asset inherits the issuer’s technical controls, such as the ability to mint, freeze or upgrade the token. These should be disclosed and covered by market standards.
Our recommendations
We support a targeted exclusion from the UK’s collective investment scheme and alternative investment fund regimes for tokenised gold assets that give holders a direct ownership interest in allocated gold. The conditions should be objective and ledger-neutral: eligibility should depend on holders’ rights, custody, redemption and reconciliation, not on whether a token sits on a permissioned or a public, permissionless network.
We also encouraged HM Treasury to bring eligible tokenised gold assets within the UK’s financial collateral framework, and to take forward the Law Commission’s recommendation for a bespoke statutory framework for crypto-token collateral. This would complement, not replace, the 2025 Act. The Act confirms that digital assets can be property. A collateral framework would set clear rules for how they are pledged, enforced and treated in insolvency, giving markets certainty now rather than waiting for the courts.
Finally, we asked the FCA to confirm that using an eligible tokenised gold asset as collateral through a decentralised protocol does not, by itself, bring the protocol, its developers, access providers or independent risk managers within the regulated perimeter.
What’s next
Tokenised collateral is moving from pilots into live markets, and the UK has an opportunity to lead. We look forward to continuing our engagement with the FCA, including on its current consultation on cryptoasset perimeter guidance, CP26/36.