What allocated versus unallocated actually changes in a bankruptcy
This is the distinction worth remembering from the whole article. Allocated bars legally do not belong to the custodian, so an administrator generally cannot pull them into the estate to pay other creditors. Unallocated works the other way: your claim ranks alongside other unsecured creditors, and recovery depends on the liquidation outcome.
Two practical caveats:
The real redemption numbers determine who maintains the peg
Retail holders ask whether they can get metal back, but what actually keeps the token trading close to spot gold is the set of institutional arbitrageurs able to mint and redeem in size.
The loop works like this:
Redemption thresholds are therefore not merely a user entitlement; they are part of the pricing mechanism. The higher the floor, the more inconvenient the delivery point, and the heavier the onboarding, the fewer participants qualify for that loop — and the more the peg's resilience rests on a handful of firms.
Cost structure: premium, mint and redeem fees, and on-chain transfer fees are three separate bills
A common mistake when comparing the two products is looking only at the secondary market premium. Actual cost of ownership has at least three layers:
Schedules change, so do not treat a figure from a few years ago as current — check the issuer's live terms before trading. The comparison that matters is total cost of holding for a year including one round trip, not the headline spread.
Four things to confirm before you buy
Compressing the above into an actionable checklist:
All four are publicly checkable, and the time they take is far less than the cost of one bad decision.
Most people buying tokenized gold check exactly one thing: whether real metal sits behind the token. The answer is almost always yes. But what determines how much you get back in the worst case is not whether the gold exists — it is whose name the bar is registered under, which jurisdiction it sits in, and where you rank if the issuer fails.
The traditional gold market splits ownership into two forms. Allocated means specific numbered bars are registered to you; the vault is only a custodian and those bars never enter its balance sheet. Unallocated means you hold a gold-denominated claim against the issuer, the metal sits on its balance sheet, and you are its creditor. The distinction is invisible in calm markets and decisive in bankruptcy: allocated holders can assert a claim to their specific bars, while unallocated holders join the queue of unsecured creditors.
The major tokenized gold products all describe themselves as allocated and offer bar serial lookups. That is a good sign, but a visible serial number does not mean the legal structure protects you all the way down. One layer still sits in between: who the registered owner actually is, and which country's law governs that structure.
PAX Gold (PAXG) is issued by Paxos Trust Company, regulated as a trust company by the New York Department of Financial Services (NYDFS). Each PAXG corresponds to one ounce of gold meeting London Bullion Market Association (LBMA) good delivery standards, held in professional London vaults, and holders can look up the serial number of their assigned bar from their wallet address. The real significance of the trust structure is that customer assets are legally separated from Paxos's own assets — and that separation is a state regulatory requirement, not a corporate promise.
Tether Gold (XAUT) is issued by TG Commodities Limited, registered in the British Virgin Islands, with gold held in Swiss vaults. One XAUT likewise represents one troy ounce of allocated gold with serial lookup available. What it does not have is a single supervisor equivalent to NYDFS; in its place stands an offshore corporate structure combined with Swiss physical custody. That is not automatically less safe, but it means the jurisdiction you would litigate in, the remedies available to you, and the disclosure you can obtain all look nothing like those of a state-regulated trust.
Both products state that physical gold can be redeemed, yet the thresholds differ sharply. PAXG physical delivery is denominated in whole LBMA good delivery bars of roughly four hundred ounces, which runs into six figures in dollar terms, so smaller holders realistically redeem for cash or simply sell in the market. XAUT sets its physical redemption floor at fifty tokens with delivery in Switzerland, leaving collection, insurance, and transport to you. In other words, the redemption right written into the terms is, for the overwhelming majority of retail holders, a right that exists but cannot be exercised.
A serial lookup proves that a set of bars exists and has been registered. It does not prove that token supply has not outrun the bars. What matters is the frequency of the proof of reserve, which firm signs it, and whether coverage extends past the asset side to liabilities. Proof of reserve is comparatively easy to run for tokenized gold, since the asset is countable and the unit of measure is standardized — which is precisely why a fall in reporting frequency or a narrowing of scope carries a stronger signal here than it would for other real-world assets. Digital asset custody arrangements deserve the same scrutiny: who the vault operator is, whether insurance is in place, and whether the bars have been put to any other use.
If your reason for holding tokenized gold is to own an asset on-chain that is not exposed to any single country's credit, then the comparison worth making is not which product carries a few basis points less premium. It is three things: where you rank in insolvency, whether you can actually exercise redemption, and how often and how widely the issuer discloses. Those three determine whether an extreme scenario hands you a gold bar, cash, or a place in line. A few basis points of premium set your carrying cost on ordinary days; jurisdiction and structure set your principal on the day something breaks.