PAXG and XAUT as Collateral: How the 75% LTV Structure Works

Gold investors holding PAXG or XAUT can now borrow up to 75 cents on the dollar against their position without selling a single ounce. The structure doing that work looks nothing like a margin account at a bullion broker.

Gold’s sustained run has created a familiar problem: holders sitting on large unrealised gains who want liquidity without giving up their exposure. Tokenized gold now has an answer in the form of live institutional credit products, with Arch Lending operational since September 2026 and Ledn’s XAUT-backed product in active rollout. This is a genuinely new market, and a structurally thin one: roughly $63 million deployed across major lending protocols represents about 1.5% of total tokenized gold supply.

Here is a practical breakdown of how these credit products actually work, what the numbers mean, and where the risk framework diverges materially from conventional gold-backed lending, aimed at a reader weighing whether to put PAXG or XAUT to work.

How tokenized gold collateral actually works: mechanics behind the 75% LTV

The pledge structure is simple enough on the surface. A borrower deposits PAXG or XAUT, the platform holds the tokens in custody, and a loan is issued in USD or USDC against up to 75% of the token’s spot value. No ounces are sold.

The pledge structure is straightforward once you understand tokenized gold mechanics: each PAXG or XAUT token carries a legally separate claim on physical metal stored in an LBMA-certified vault, and that claim is what collateral protocols are actually underwriting when they set a 75% LTV.

The engineering shows up in the threshold sequence. Arch sets the maximum loan-to-value at 75%, triggers a margin call at 85%, and forces liquidation at 90%. Loan-to-value (LTV) is simply the loan balance measured against the collateral’s current market worth.

Read those numbers as a system rather than a list. The 10-point gap between the starting LTV and the margin call gives the borrower room to absorb ordinary gold price wobble. The 5-point gap between the margin call and forced liquidation is deliberately tight, which means a sharp drawdown can push collateral into forced selling quickly, at institutional scale.

That calibration tells you the product is built for gold’s specific volatility profile: wide enough to tolerate normal moves, narrow enough that a fast correction still bites.

Approval does not run on a credit score. Borrowers complete KYC/AML onboarding, which Arch describes as taking a few minutes, and funding arrives in USD or USDC.

The custody structure is where the institutional framing earns its keep:

• Custodian: Anchorage Digital N.A., a federally chartered bank
• Insurance: $100 million of coverage through Lloyd’s of London
• Rehypothecation: none. Arch commits not to lend out or reuse pledged collateral

For a borrower, this is the first question worth answering before signing anything: at what gold price does your position hit the margin call, and at what price does the smart contract sell it out from under you? The threshold table above is the whole answer.

The federal guidance on crypto-asset safekeeping issued jointly by the OCC, Federal Reserve, and FDIC in July 2025 establishes that existing risk management principles apply to digital asset custody, including compliance, legal, and operational controls, which reinforces why federally chartered custodians like Anchorage Digital carry meaningful regulatory weight in this structure.

PAXG vs. XAUT: same collateral function, different issuer architecture

Both tokens do the identical job as collateral at Arch. Each represents one fine troy ounce of physical gold, and each carries the same 75% LTV. The meaningful difference sits behind the token, in who issues it and how they prove the gold exists.

PAXG is issued by Paxos, regulated as a New York-chartered trust institution. Each token maps to a specific, serialised London Good Delivery bar stored in an LBMA-certified vault, and holders can verify the bar’s serial number on-chain. Paxos publishes monthly reserve attestations conducted by KPMG, backed by annual CPA oversight.

XAUT is issued by TG Commodities, a Tether-affiliated entity. Reserve assurance reports are prepared quarterly by BDO Italia, and serial numbers and vault addresses are redacted for stated security reasons.

That attestation gap is the core distinction, and it matters most under stress.

The XAUT issuer structure, involving TG Commodities as a Tether affiliate operating under Swiss regulatory framing rather than a US-chartered trust, creates a governance profile that differs meaningfully from Paxos and shapes how the attestation gap should be weighted by a borrower pledging a material position.

A monthly or quarterly attestation confirms that reserves matched token supply on a single snapshot date. It is not a continuous, real-time verification, and it is not a full audit of the issuer’s solvency or internal controls.

On a quarterly cycle, XAUT’s reserve position is confirmed less recently than PAXG’s. Any impairment occurring between reporting dates would stay invisible to market participants until the next report lands. For a borrower pledging a material position, that is a transparency difference, not just a scheduling one.

The scale of each market is worth knowing before you commit.

Physical redemption is largely theoretical for most holders. Direct PAXG redemption requires a minimum of 430 tokens per London Good Delivery bar, and XAUT carries comparable friction. In practice, both tokens function as price-exposure instruments with a metal-conversion option that the vast majority of users will never touch.

Choosing between them as collateral is therefore not simply a rate or liquidity decision. It is a choice about issuer governance, attestation frequency, and how much transparency you require before pledging.

Where the risk architecture diverges from traditional gold-backed lending

Start with what is familiar. A borrower pledges an asset, receives a loan against it, and faces a margin call and then liquidation if the asset falls in value. That baseline is shared with any bullion-backed credit line or gold ETF margin facility. The complications sit on top of it.

Risks shared with conventional collateral lending

The margin call and liquidation mechanics operate here in recognisable ways. If gold falls and the loan-to-value climbs toward 85%, the borrower gets a call to add collateral or repay. Fail to cure it, and at 90% the position is sold to protect the lender. Price-driven collateral shortfall is the oldest risk in secured lending, and tokenized gold does not escape it.

Risks specific to tokenized gold structures

This is where the blockchain wrapper stops being cosmetic. Several risk layers have no equivalent when you pledge physical bars or regulated ETF shares to a broker:

• Issuer solvency risk: the gold sits with Paxos or TG Commodities, and both retain contractual discretion to restrict redemption under their own terms.
• Smart contract risk: liquidation executes automatically in code, with no manual override.
• Depeg risk: under stress, PAXG and XAUT can temporarily trade below spot gold, so collateral value can fall faster than the metal price implies.
• Liquidity concentration: roughly $63 million is deployed across two major lending protocols, about 1.5% of total tokenized gold supply (Gokhshtein Media, August 2026).
• Redemption restriction: legal claims on the physical gold depend on off-chain contracts that vary by jurisdiction.

Chainlink’s 2026 explainer makes the point plainly: counterparty risk is inherent because the physical gold stays in centralised vaults. The ledger may be decentralised, but the legal claim on the metal is not.

Counterparty risk in digital gold takes a structurally different form from physical bar ownership: the legal claim on the underlying metal runs through off-chain contracts with the issuer, not through direct possession, which means custodian solvency and redemption terms sit in the risk stack whether or not the borrower ever intends to redeem.

The depeg dynamic deserves attention, because academic evidence sharpens the concern. A 2026 paper in the Review of Derivatives Research found that commodity-backed stablecoins generate strong positive abnormal returns during crises but also larger and more persistent peg deviations, indicating slower structural adjustment under stress. Translated for a borrower, that means collateral can dislocate from spot gold at exactly the moment a margin call is most likely.

Now weigh the liquidity figure again. That $63 million is not just a smallness observation. It tells you a large forced liquidation in this market has no comparable precedent, because the market has never been tested at institutional scale. A single sizeable liquidation could move prices against every other borrower at once, with slippage no one has yet measured.

Understanding these layers lets you compare tokenized gold lending honestly against a bullion-secured credit line or an ETF margin facility, where counterparty exposure differs in kind, not merely in degree.

Ledn’s pending XAUT product and the state of the broader market

Arch is live with fully disclosed terms. Ledn is the other major centralised lender in the frame, and its posture tells you a lot about the market’s stage.

Ledn and Tether jointly announced XAUT collateral support in June 2026. Reporting since then treats the product as live or in active rollout in at least some jurisdictions, with loans issued and repaid in USDT or USAt on an open-term basis, no scheduled monthly payments. The model mirrors Ledn’s established Bitcoin-backed loan: collateral held 1:1, no rehypothecation, margin call and liquidation if LTV thresholds are breached.

What Ledn has not done is publish the numbers that let a borrower compare it to anything.

Here is the split as it stands:

• Confirmed: XAUT accepted as collateral; loans in USDT or USAt; open-term repayment; no rehypothecation; 1:1 collateral holding.
• Undisclosed: LTV ratios, interest rates, and minimum loan sizes.

“XAUT-backed loans are expected to launch later in 2026, and Tether and Ledn have disclosed no interest rates, loan-to-value ratios, or minimum borrowing amounts.” (TechTimes, 29 June 2026)

That silence is not an oversight. It is a characteristic of a market in early formation, and it carries a direct practical consequence: comparison shopping between lenders is currently impossible. You cannot weigh Ledn against Arch on rate or LTV, because only one set of terms exists.

The precedent here runs deeper than 2026. The decentralised lender ETHLend listed Digix Gold (DGX) as collateral back in 2018, an early demonstration that commodity-backed tokens can work as collateral, and an early warning of the liquidity and liquidation challenges that persist today. The industry’s stated direction in 2026 is toward real-time proof-of-reserves and bar-level identity verification (PillarsX analysis), but that standard has not yet reached these lending products.

For a prospective borrower, the read is straightforward: Ledn’s undisclosed terms are a reason to either wait, or proceed with Arch’s fully disclosed structure first.

What this market’s early formation means for gold investors ready to act

The core trade-off is now clear. Tokenized gold collateral gives you liquidity at up to 75% LTV without selling your gold exposure, but it layers on issuer, attestation, smart-contract, and liquidity risks that conventional gold-backed lending does not carry.

This makes sense now for a specific profile: an institution or high-net-worth holder with a PAXG or XAUT position above Arch’s $250,000 minimum, comfort operating inside regulated crypto custody, and a genuine need for liquidity without disposing of gold exposure. If you can meet that minimum and have confirmed your jurisdiction’s eligibility, a fully transparent product exists today. If you sit below it or need to compare terms, the market has not yet built you a comparable option.

Three variables are worth watching as the market matures:

1. Ledn’s rate and LTV disclosure, which would finally make lender comparison possible.
2. Progress on real-time proof-of-reserves at both Paxos and TG Commodities, narrowing the monthly-versus-quarterly attestation gap.
3. Whether protocol deployment grows beyond its current 1.5% of supply, which would build the stress-test history this market still lacks.

The honest conclusion is that this market exists but is not yet ready for broad retail participation. Engaging now means limited benchmarks, limited competitive pressure on terms, and limited stress history, which favours caution and smaller initial positions.

For investors weighing tokenized gold lending against other ways to generate returns from a gold position, our full explainer on physical gold yield strategies covers the leasing market, realistic yield ranges, and the due-diligence checklist that applies before committing metal to any counterparty.

This article is for informational purposes only and should not be considered financial advice. Investors should conduct their own research and consult with financial professionals before making investment decisions. Past performance does not guarantee future results. Financial projections are subject to market conditions and various risk factors.