RWA: Will Gold's No-Cash-Flow Problem Be Solved?

Why I Started Paying Attention to Gold Again

Recently, I’ve spent some time researching RWA (Real World Assets).

What got me interested at first wasn’t actually blockchain. It was a long-term investing question:

Is gold really an asset suited to long-term allocation?

I’ve always been somewhat torn about gold. It has many strengths: it’s recognized worldwide, it doesn’t depend on corporate earnings, and it has safe-haven value in times of inflation, war, and financial risk.

But it also has one obvious problem:

Gold has no cash flow.

After you buy gold, your return comes mainly from price appreciation. That’s clearly different from stocks, bonds, and real estate: stocks are backed by corporate profits, bonds by interest, real estate by rent. Gold is more of a store-of-value asset.

So when gold rises to a relatively high level, I always ask myself: if I buy gold now, where will the future return come from? If the only thesis is waiting for the price to keep rising, I need a bigger margin of safety.

Then, while researching RWA, I found that this problem may be changing. It’s not that gold itself has started paying interest. It’s that once gold is brought on-chain, it can participate in lending, market making, and collateralization — adding a layer of financial return on top.

What Is RWA

RWA, simply put, means tokenizing real-world assets.

In the past, gold belonged to the gold market, government bonds to traditional finance, and real estate to offline assets. These assets were cut off from on-chain finance.

What RWA tries to do is map real assets onto a blockchain, giving them:

• On-chain trading capability;
• Global circulation;
• Composability with DeFi.

Take a gold token as an example. It doesn’t just represent the value of gold — it can also be traded, pledged as collateral, lent out, or added to a liquidity pool.

That changes one thing: in the past, gold was an asset you simply held. In the future, it may become a component inside the on-chain financial system.

Why RWA Is Getting More and More Attention

For the past few years, the most attractive thing about DeFi was high yields. Many projects offered annualized returns of tens or even hundreds of percent.

But people eventually realized that much of that yield didn’t come from real business income. It came from token issuance, liquidity incentives, and user subsidies. Once the rewards stop, the yield drops fast.

Yield that can truly last over the long run ultimately has to come from real economic activity:

• US Treasury interest is paid by the government;
• Corporate loan interest is paid by companies;
• Real estate rent is paid by tenants.

The core value of RWA is the attempt to bring these real-world assets and cash flows on-chain.

Gold RWAs: PAXG and XAUt

PAXG

PAXG (Pax Gold) has a very direct design: one PAXG represents a claim on one troy ounce of qualifying physical gold.

So PAXG isn’t really an ordinary cryptocurrency. It’s more like “the on-chain version of gold.”

Compared with traditional gold, its biggest change isn’t the price — it’s that it can enter DeFi, for example by participating in lending, LP positions, and collateralized borrowing.

That means gold, for the first time, has strong on-chain composability.

XAUt

XAUt (Tether Gold) follows a similar logic: one XAUt represents one troy ounce of gold.

The most intuitive difference between the two is the issuer: PAXG is backed by Paxos, XAUt by Tether. Choosing between them can’t come down to whether the price is pegged to gold alone. You also need to compare the issuer, custody, audits, redemption terms, on-chain liquidity, and the degree of DeFi support.

In the DeFi scenarios I actually researched this time, PAXG was the one that more easily entered the discussion.

Where Does a 10%—15% Return Come From

This is the part most easily misunderstood.

People say: “Gold RWAs can earn 10%—15% annualized returns.” But the more accurate statement is:

The return isn’t generated by the gold. Once gold enters DeFi, the return comes from lending, trading fees, or token incentives.

So 10%—15% is not a fixed yield built into PAXG, and it doesn’t mean the return is sustainable over the long run. Whenever you see a yield figure, the first step is to break down where it comes from.

The First Way: Lending

This is the easiest to understand.

You deposit PAXG into a lending protocol. Borrowers borrow it and pay interest, and depositors receive a portion of that interest as yield.

But there’s a practical problem right now: PAXG’s lending ecosystem isn’t fully mature yet. Even if a leading DeFi lending platform has a large market overall, that doesn’t mean every chain and every version offers a mature PAXG market.

This isn’t a problem with the gold asset itself. It’s that the application ecosystem, liquidity, and risk parameters haven’t fully developed yet.

The Second Way: LP (Liquidity Providing)

For example, PAXG/USDC.

You supply both PAXG and USDC to form a trading pool. When others trade through the pool, they pay fees, and the fees are distributed to liquidity providers.

That’s the basic logic of automated market making.

Many people see an LP’s annualized yield and read it as a deposit. It isn’t. An LP position is essentially market making. The risks you take on aren’t just protocol risk — they also include the risk from changes in the relative prices of the two assets.

What Is Impermanent Loss

This is one of the most important risks of being an LP.

If you simply hold PAXG, when gold rises, you enjoy the full price increase.

But in a PAXG/USDC LP, the automated market-making mechanism gradually sells some of your PAXG and buys USDC as the price rises, to maintain the pool’s pricing relationship. In the end, the amount of gold you hold may shrink.

So to judge whether an LP position actually makes money, you can’t just look at the APR on the page. You need to look at:

Fees and incentive rewards, minus the difference versus simply holding the two assets, minus gas, management costs, and potential losses.

Strictly speaking, “impermanent loss” is an opportunity cost relative to holding the same two assets directly; it doesn’t necessarily mean the account shows an absolute loss. But its effect on your investment outcome is real.

What’s the Difference Between Uniswap V2 and V3

V2: Market Making Across the Full Price Range

V2 liquidity covers the entire price range, from zero to infinity.

The advantage is simplicity — no need to actively set a price range. The disadvantage is that a lot of capital sits in price zones that will almost never trade, so capital efficiency is low.

V3: Concentrated Liquidity

V3 lets liquidity providers set their own price range.

For example, you could concentrate your PAXG liquidity between $3,000 and $4,000. While the price stays inside the range, your capital is used more efficiently and earns fees. Once the price leaves the range, your position turns into a mostly one-sided asset and stops earning fees for that range, until the price comes back or you readjust.

Its advantage is higher capital efficiency. Its disadvantage is that you need to judge the range and manage the position actively.

So ordinary investors shouldn’t run a very narrow range just because V3 shows a higher APR. Narrow-range market making is already closer to an active strategy than to passive holding.

Why Some LP Yields Reach Hundreds or Even Thousands of Percent

While researching Uniswap, I also saw pools showing 100%, 500%, or even higher annualized yields — for example, some ETH/small-cap token or meme coin pools.

Those high APRs usually come from a few factors:

• Short-term trading volume is very high relative to the liquidity;
• The project distributes extra token incentives;
• The token price swings violently;
• The pool is too small, so short-term data gets amplified.

High yield doesn’t appear out of thin air. It usually compensates for token price declines, incentives ending, liquidity disappearing, impermanent loss, and contract risk.

Many high-yield opportunities are, at their core, using a very high nominal return to compensate for very high principal risk.

Other Directions in RWA

Treasury RWAs

This is one of the clearest RWA directions right now.

Represented by products like those from Ondo Finance, the underlying assets are mainly tied to US Treasuries or money market instruments, and token holders receive returns related to the underlying interest.

The advantage is that the source of returns is relatively clear. The risks include interest rate movements, issuance and custody structures, smart contracts, liquidity, compliance, and regional access restrictions.

Private Credit RWAs

Maple Finance is closer to an on-chain institutional credit market.

Institutions or professional borrowers receive funding, and investors receive interest. Returns can be higher than Treasuries, but the core risk also shifts from market prices to credit risk: whether the borrower can repay, and whether the collateral and recovery mechanisms actually work, are what matter.

Goldfinch

Goldfinch leans toward real-world credit lending, and some of its models don’t rely on fully on-chain over-collateralization.

That approach can channel funds into more real borrowing scenarios, but it also means default risk is more direct. If a borrower can’t repay, the loss may ultimately be borne by the capital providers.

Silo Finance

Silo is a DeFi lending protocol, not an issuer that tokenizes real-world assets in the traditional sense.

What’s more worth watching is its risk isolation design: different asset markets are kept as separate as possible, reducing the chance that risk from a single collateral asset spreads across the whole protocol. It shows that for RWAs to enter DeFi, asset issuance alone isn’t enough — you also need finer-grained lending and risk infrastructure.

Problems I Ran Into While Researching This in Practice

After buying and researching PAXG, the real question quickly shifted from “do gold RWAs exist” to “where can they generate relatively reliable returns.”

What I observed at the time:

• In OKX Web3, I didn’t find a sufficiently clear, mature PAXG lending entry point;
• In the Aave markets I checked, I didn’t find a PAXG market suitable for direct participation;
• On Uniswap, I could find PAXG-related pools, but they were mainly LPs — not a simple deposit that earns fixed interest.

This tells me the RWA direction may well hold up, but the DeFi infrastructure and liquidity for gold RWAs are still at a developing stage.

For the same reason, you can’t jump straight from “there may be cash flow in the future” to “it’s a stable high-yield asset now.” In between sit protocol support, lending demand, market-making depth, risk controls, and regulatory access.

Risks and My Final Judgment

Return Source Risk

When you see a 10% or 15% annualized yield, the first thing to do isn’t compound interest math — it’s asking: where does the money come from?

If it comes from real borrowing interest or reasonably stable trading fees, the logic is relatively clear. If it mainly comes from platform subsidies and token incentives, you need to judge what’s left after the incentives stop.

Protocol Risk

Even if the underlying gold really exists, once the asset enters a DeFi protocol, you add smart contract, oracle, cross-chain bridge, governance, and front-end risks.

Real gold doesn’t mean the protocol using that gold is necessarily safe.

Liquidity Risk

Many niche RWAs aren’t hard to buy. But when markets swing or a platform runs into trouble, you may not be able to sell at a reasonable price. A price shown on a page doesn’t mean there’s enough depth to absorb a large exit.

Asset Authenticity and Issuer Risk

The biggest premise of RWA is that the off-chain asset really exists, and that token holders have clear, enforceable rights to it.

When researching a gold token, you need to pay attention to:

• Who custodies the gold;
• Whether there’s an independent audit or proof of assets;
• How the token maps to specific gold claims;
• Redemption terms, fees, and minimum thresholds;
• Whether holders can assert their rights if the issuer, custodian, or jurisdiction runs into trouble.

Regulatory and Access Risk

One end of RWA connects to DeFi; the other end connects to traditional finance. So it’s affected by rules on securities, commodities, anti-money laundering, qualified investors, and regional restrictions.

The same product may not carry the same purchase, redemption, and return rights for investors in different countries or regions.

My Final Judgment

After researching RWA, my biggest change isn’t thinking gold has become a high-yield asset. It’s that I’ve started to understand it as a base on-chain asset that can potentially be financialized and composed with other things.

In the past, holding gold mainly meant waiting for the price to rise.

In the future, tokenized gold may be able to earn additional returns through lending, market making, or collateralization, while keeping its price exposure.

But this has to be stressed:

Cash flow isn’t something gold produces out of thin air. Every extra layer of return usually comes with an extra layer of counterparty, protocol, liquidity, or market risk.

At this stage, I won’t treat PAXG as “high-interest gold” just because I see a 10%—15% APR, and I certainly won’t make it a heavy core position in the household portfolio.

For me, the more reasonable place for it is still:

• Treat gold as a diversification and defensive asset;
• Treat PAXG as one on-chain way of holding gold;
• Treat lending and LP positions as enhancement strategies whose risks need to be assessed separately;
• Use small positions to track whether RWA infrastructure gradually matures.

RWA is worth long-term attention because it connects the asset value of traditional finance with the liquidity capabilities of blockchain.

But a technology having a long-term direction doesn’t mean every yield opportunity shown on a page right now is worth investing in.