Tokenizing Commodities: Gold, Oil, and Agricultural Products on the Blockchain

In 2025 there was a three times increase in the market value of all types of commodities available as tokens (digital assets). The most notably tokenized commodity in 2025 was gold, which saw a massive increase in price resulting in a combined market cap of nearly $3 billion between PAX Gold and Tether Gold. In addition, increases for all other tokenized commodities also occurred during this time including: oil mineral rights, agricultural product receipts and carbon credits. By mid-2025, infrastructure for tokenizing physical goods (e.g. vaults, oracles, and legal wrappers) had moved from experimentation toward being operational, meaning that tokenized physical goods could be turned into liquid on-chain assets which could be traded.

Step One: Choose the Asset and Verify It Physically

The commodity that is being converted into a blockchain (crypto) asset is an actual physical object before being converted into a digital asset; thus, when a token issuer creates the token, they will issue a certain amount (quality and quantity) of physical goods/commodities as the basis of creating the token. For example, in the case of gold, the issuer must confirm that there is one kilogram of certified [LBMA] 99.99% gold at a visible and verifiable location that has been verified by LBMA and produced by a certified/refinery. The same is true if the commodity is crude oil; there must be proof of ownership of one barrel of WTI Crude through an examination of the title and a physical examination of the actual barrel of oil. This is how it works for all goods/commodities, but with agriculture, the verification process is somewhat different because of the ability to verify the presence of silos and provide silo receipts. This means that if a party claims to have more of an agricultural product than a party has, or if their agricultural product is of higher quality, greater quantity or has better provenance than another party, they must provide documentation to back up their claim. All activities are documented in detail and used as proof of what took place for the future.

Step Two: Build the Legal Custody Structure

While the physical commodity cannot be put on-chain, legal ownership of the commodity can.

To do this, issuers will enter a custody arrangement with a regulated vault operator, either directly or through a Special Purpose Vehicle to hold the commodity on behalf of future token holders. For example, Tether Gold has its gold in one of the largest private vaults in Switzerland, in the Canton of Ticino, while PAX Gold uses Brink's vaults in London as their custodian. Each custodian also must be subject to an independent audit and insurance.

As part of the custody agreement, tokens represent legal ownership of a set amount of the underlying commodity and are redeemable for fiat currency, as opposed to being a derivative contract, a fund share or a price-tracking instrument. Therefore, each token holder has a direct and enforceable ownership claim against the issuer for a set amount of the underlying commodities.

Farmers or large agri-businesses using JusToken — the premier conversion source for silo receipt & export flow docs for programmable collateral — convert grain in silos or expected future harvest flows into tokens; enabling farmers or large agri-businesses to secure short-term funding through DFI liquidity pools using those tokens. Unlike precious metals (like gold), there are many more intricacies related to storage of agricultural commodities because they are seasonal, face risk while in storage and have variability by grade; thus, making custody infinitely more difficult with agriculture than precious metals.

Step Three: Mint Tokens With Embedded Proof

After confirming and auditing the custody arrangement, the tokenization platform will use on-chain minting to create tokens — each of which represents an audited unit of the underlying commodity.

For example, one PAXG token represents one Troy ounce of gold on the London Bullion Market Association (LBMA). One XAUT token represents one Troy ounce of gold stored in a specific numbered bar located in a specific vault.

To provide continuous proof-of-reserve verification, Chainlink Oracle networks continuously access custodian APIs and aggregate the data for on-going reporting into chain. Therefore, at any given point in time, it is possible for any token holder to confirm there are as many tokens issued as there are audited physical assets held in custody; this level of financial transparency is not available through traditional commodity-backed financial products. For instance, gold exchange traded funds (ETFs) publish a financial audit of reserves once per quarter, whereas a tokenized gold product provides continuous reporting of reserves through its smart contract.

All elements of product transfer (i.e., how tokens transfer from one holder to another), redemption (i.e., how token holders redeem their tokens for physical delivery) and know your customer (i.e., KYC) are encoded in the smart contract directly linked to the token. With respect to physical delivery options (i.e., PAXG and Tether Gold), the smart contract will govern the redemption request process and the minimum lot size that can be redeemed.

Step Four: Trade, Collateralize, and Earn

Tokens that have been minted can be sold on decentralized and centralized exchanges 24/7. Unlike traditional commodity futures, which are only open six days/week and have specific closing times each day, tokenized commodities such as gold are traded every second of every day. The availability of these tokens for trading is especially significant when there are uncertainties in world events (a rise in the price of oil due to escalating tensions in the Middle East or an increase in the price of gold during a downturn in the stock market) because historically, there have been many large price movements in commodities after traditional markets have closed. Tokenized holders of these commodities can buy or sell property during this time when traditional market investors must wait.

Tokenizing gold also provides the advantage of integrating decentralized finance (DeFi); meaning that if an investor makes gold into a token, they could use that token as collateral to borrow stablecoins without having to sell the underlying gold. For example, investment in gold will have been completed at the $1000. When the price of gold reaches $2000 in January 2025, if an investor has tokenized 1 ounce of gold and deposited it onto Aave or Compound, they would maintain full ownership of the upward movement of the price of gold while using those stablecoins for another purpose. Traditional investing in gold does not allow for that level of capital efficiency.

In the case of oil, Hadron, which is powered by Tether, is letting mineral rights holders (people who own the rights to receive a royalty percentage of their produced oil) tokenize their royal streams into a programming language that automatically gives a yield based on production and delivery.

Step Five: Redemption Closes the Loop

The final step of the tokenization process ensures that if a commodity is primarily backed by a token, the token has price value but does not have enough backing; redeeming the token can determine if it is a true tokenized commodity as opposed to a derivative. The physical delivery/redemption of the tokenized commodities (PAXG and the agricultural tokens) allows for proof that those tokens have bona fide support in commodities because once a holder redeems their token, they will receive a physical delivery of the underlying commodity.

PAXG holders can redeem their tokens for physical gold by receiving gold bars, and agricultural token holders can redeem their tokens by receiving warehouse releases. This means that the ability to redeem proves the above statement, and the lack of an ability to redeem equates to the token only being a price reference. In this way, the blockchain is the registry for ownership of the underlying commodity.

The entire system consists of a physical commodity (gold, grains, etc.), the custodial structure for that commodity, a token that represents the underlying asset on-chain, an oracle that verifies the prices 24/7, the ability to buy and sell the tokens on the same platform, the ability to use the tokens in DeFi as collateral, and the ability to redeem tokens for physical delivery of the underlying asset.

Each of these components is designed to be operational by 2026. The infrastructure that has been constructed for the commodity market is now functional.