Asset-Backed Tokens

Asset-backed tokens are digital tokens recorded on a blockchain that represent ownership of, or a claim on, an underlying asset held off-chain, such as gold, cash, government bonds, company shares, invoices or real estate. Unlike most cryptocurrencies, whose value depends only on market demand, an asset-backed token is designed to derive its value from the asset behind it, which is usually held by a custodian or a legal vehicle on behalf of token holders.

The term is broad and overlaps with several other labels. Fiat-backed stablecoins are asset-backed tokens tied to money; tokens backed by commodities include gold tokens such as Tether Gold; and tokenized funds and bonds are often grouped under real world assets. In EU law, some tokens backed by a basket of assets are a specific category called asset-referenced tokens.

Think of a cloakroom ticket for a gold bar. The bar sits in a vault, and the ticket proves it is yours. If you hand the ticket to someone else, they now own the bar. An asset-backed token is that ticket in digital form, recorded on a blockchain so it can be passed around quickly and split into small pieces.

The ticket is only as good as the vault. If the vault does not actually hold the gold, or the company running it fails, the ticket may be worth much less than promised. Checking who holds the asset and what rights the token gives is the heart of judging any asset-backed token.

• Asset acquisition and custody. An issuer buys or receives the asset and places it with a custodian, bank or special purpose vehicle.
• Token issuance. Tokens are minted on a blockchain in proportion to the assets held, through a process of tokenization.
• Transfer. Holders trade or transfer tokens peer to peer, on exchanges or in DeFi protocols, subject to any whitelisting rules.
• Verification. Issuers publish audits, attestations or proof of reserves to show that tokens are fully backed, sometimes using oracles to bring data on-chain.
• Redemption. Eligible holders can redeem tokens for the asset or its cash value, after which tokens are burned.

• Fiat-backed stablecoins. Tokens such as USDC backed by cash and short-term government securities, described under fiat-backed stablecoins.
• Commodity tokens. Gold tokens such as PAX Gold and Tether Gold, each linked to physical bullion, often allocated gold stored in a vault.
• Tokenized funds and treasuries. Shares in money market or bond funds issued on-chain, such as a tokenized money market fund.
• Securities tokens. Tokenized shares, bonds or private credit, usually treated as a security token.
• Real estate and other assets. Tokens representing interests in property, art or receivables, often through fractional ownership.

How asset-backed tokens are regulated depends on what they represent. Tokens that give investment returns are usually securities under laws such as US securities rules, often assessed with the Howey test. Stablecoins are subject to dedicated regimes in several jurisdictions, including the EU's Markets in Crypto-Assets Regulation, which sets reserve, custody and redemption rules for e-money tokens and asset-referenced tokens, and the US GENIUS Act of 2025 for payment stablecoins. Commodity tokens may fall under commodities or e-money rules depending on structure. Issuers usually need to carry out identity checks on holders who mint and redeem.

Asset-backed tokens can make assets easier to move, divide and settle. Traders use stablecoins and tokenized treasuries as collateral and for settlement around the clock; investors buy small amounts of gold or funds without minimum sizes; and DeFi protocols accept some asset-backed tokens as collateral. Large asset managers have launched tokenized money market funds, and banks are testing tokenized deposits and bonds to shorten settlement times.

The main risks are off-chain. Holders depend on the issuer and custodian actually holding the assets, keeping them separate from their own and honouring redemption. Weak or infrequent audits, unclear legal rights and the failure of an intermediary can leave tokens worth less than the assets behind them. Many tokens allow only approved institutions to redeem, so ordinary holders must sell on the market, where prices can deviate from the backing. Smart contract bugs, issuer powers to freeze tokens and the legal question of whether owning a token really means owning the asset add further risk.