Aave becomes the dominant DeFi venue for tokenized gold deposits

Aave V3 now controls over 50% of all tokenized gold deposited across decentralized finance lending protocols. The protocol’s dominance in this niche reflects a broader shift in how DeFi users think about collateral. Gold-backed tokens like PAXG (Pax Gold) and XAUT (Tether Gold) offer something most crypto assets cannot: relative price stability anchored to a physical commodity. How Aave cornered the gold market 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, Tether’s gold token, into the core instance of Aave V3 began circulating in mid-2025. Adding a second major gold token expanded the protocol’s appeal to a wider pool of users who might prefer one issuer over another. Aave V3’s isolation mode, a feature introduced back in 2022, played a key role in making this possible. Isolation mode lets the protocol onboard newer or less liquid assets with tighter risk parameters, essentially ring-fencing potential problems before they can spread. That cautious engineering paid off during a market stress event in March...