Gold is regarded as the 'most standardized safe-haven asset', but once cross-border allocation occurs, it can be dragged into a high-cost maze by different vault standards, lengthy logistics, and repetitive inspections. Taking the example of transporting London gold bars to Shanghai: it must undergo professional security transport, high insurance costs, customs procedures, several days to weeks of transit time, and also bear the costs of market price differences and re-inspection upon arrival. Naturally, gold bars with 99.99% purity can be exchanged globally, however, the trading link is tightly bound by physical movement and regulatory barriers, and standardization remains on paper.

The efficiency of modern finance lies in the assets being interchangeable, divisible, unified in rules, and transparent in information. Gold, during the gold standard era, had achieved institutionalized standards through the central bank network, but after the decoupling in 1971, the unified framework collapsed, and gold again became an ordinary commodity constrained by physical and regulatory limits.

The root of the problem lies in the 'conditional' standardization of gold: the London Bullion Market Association's Good Delivery is only applicable to specific institutions/vaults. Once it crosses countries, regulatory frameworks, or involves non-investment grade forms, the standard immediately becomes invalid. Theoretically, the price difference between London and Shanghai should only reflect predictable transportation and insurance costs, but in reality, the New York futures market has long shown an average discount of $7.12/oz relative to Shanghai's spot price, with a standard deviation of $5.58. These additional frictions (regulatory differences, inspection costs, tariffs, etc.) combine with time, geography, price discovery, settlement, information, and other multifaceted factors, constituting the currently fragmented gold market.

Multiple non-standardization dilemmas in traditional gold trading

1. Fragmentation of time and market structure

Gold trading seems 'globalized', but is actually limited by a 5×24 trading window and geographical liquidity differences. While CME Globex offers 23 hours of trading, real price discovery is concentrated during the overlapping hours of London and New York, with significant liquidity shortages during the Asian session. Market closures and settlement windows prevent immediate hedging during unexpected events, and overnight and cross-time zone risks accumulate, also restricting high-frequency/arbitrage strategies.

Geographical fragmentation further amplifies price differences: between 2017 and 2019, New York futures had an average premium of $3.84/oz over London spot, but a long-term discount of $7.12/oz relative to the Shanghai Gold Exchange, with a standard deviation of $5.58 (more than twice the London/New York price difference). These price disparities should theoretically be arbitraged away, but in reality, they persist due to the nonlinear accumulation of regulatory, tariff, capital flow restrictions, and logistics costs. The Asian markets (like China and India) often maintain a structural premium over international prices, making the global gold market inherently fragmented.

The transportation costs of physical gold are themselves highly non-standardized.

To ensure safety, gold transport must rely on specialized, fully insured high-security logistics services, such as SWISS Valuables. The demands for specialization result in logistics costs far exceeding those of ordinary commodity freight. From London to Shanghai, the air freight cost for 100 kilograms of goods is approximately $654 to $872, with a typical transit time of 6 to 10 days. In contrast, while sea freight is cheaper, the required time can take up to 31 to 50 days, which is unacceptable for financial institutions that rely on rapid capital turnover.

More seriously, the transfer of physical assets is easily impacted by geopolitical risks. For example, the U.S. once imposed tariffs of up to 39% on 1kg and 100-ounce gold bars from Switzerland, causing these standardized gold bars, originally intended for delivery in New York, to be assigned different trading risks, losing interchangeability immediately after crossing borders.

The complex regulatory and customs declaration processes exacerbate friction. For instance, individuals or institutions bringing gold worth over $10,000 (including coins, which are defined as currency instruments by the U.S. FinCEN) into the U.S. must fill out the FinCEN 105 declaration form. Customs duties, declaration requirements, and restrictions on gold imports and exports vary by country. The additional compliance burden and potential tariff impacts severely affect the standardization of physical gold in cross-border flows, influenced by geopolitical risks.

The standardization of physical gold is not actually guaranteed by the asset itself but is maintained by expensive and time-consuming third-party verification and certification processes.

Internationally, the London Bullion Market Association's Good Delivery standard (which typically requires 99.5% or 99.9% purity) is the cornerstone of investment-grade gold. However, in a broader market, purity markings (such as 24K, 999) may be forged or inaccurately tested.

Verifying gold requires repetitive and varying costs methods. Rapid, non-destructive methods such as X-ray fluorescence testing cost between $50 and $150. However, when dealing with high-value or suspicious assets, the most accurate but destructive fire assay is still necessary. Fire assay costs can reach $100 to $300 or more and can take 2 to 3 weeks. Repeated verification constitutes the largest non-standardized friction in gold trading.

Even for the London Bullion Market Association standard gold bars, upon arrival in Shanghai, the recipient may still require re-inspection, weighing, or repackaging based on their own risk management requirements. The repeated payment of 'trust costs' severely slows down transaction and settlement speeds.

2. Physical links and operational costs

Once gold leaves its original vault, it must bear high-security logistics, customs, and insurance procedures, as well as geopolitical variables. The verification process is also time-consuming and expensive, and the 'trust cost' will continue to accumulate.

The separation of custody and ownership records results in a fragmented cost structure: vaults may charge per 12 bps, per ounce, or per month, and transferring custody incurs additional transportation, re-weighing, repackaging, and management fees (e.g., $175). Once crossing multiple regulatory zones, the unpredictable 'additional terms' are often more challenging to manage than fluctuations in gold prices.

The so-called 'paper gold' is merely the standardization of contracts. ETFs and futures unify terms at the trading level but still rely on physical custody, rolling costs, and certificate delivery. The physical delivery ratio in the New York futures market has long been below 1%; once actual delivery occurs, the process still returns to the old paths of gold extraction, inspection, and cross-border circulation. In other words, traditional derivatives have not enabled the ownership of the underlying asset to achieve cross-domain exchange.

3. Institutional, informational, and historical factors

The formation, settlement, and information disclosure of gold prices each follow different paths: London OTC relies on market maker quotes, New York futures focus on centralized bidding but are limited by trading hours, while the Shanghai Gold Exchange operates under a member-based centralized trading model. Between 2017 and 2019, the standard deviation of price differences between Shanghai and New York reached $5.58 (compared to $1.96 for London/New York), indicating that the fragmentation of the price discovery mechanism has exceeded the range that arbitrage can absorb.

Settlement and delivery are similarly fragmented: London mainly operates on T+2/physical delivery, while New York futures adopt T+0/T+1 with a margin system, and Shanghai spot offers T+0 but only for internal exchange. Cross-market arbitrage thus incurs additional settlement and liquidity risks; when liquidity tightens in one location, other markets also struggle to compensate in time.

Information disclosure standards and data acquisition are also not unified. Trading data in London's OTC market is not publicly available, and investors often need to pay for channels to access cross-market prices; the requirements for real-time/delayed disclosure and transparency among exchanges are inconsistent, causing price transmission to lag. Meanwhile, numerous non-standard gold products (jewelry gold, branded gold bars, buyback gold, etc.) differ significantly in specifications, inspection, and discount rules, further diluting the market's consensus on 'standardized gold'.

Historically, the gold standard provided a unified regulatory and exchange rate framework, but after the decoupling in 1971, global regulation, tax systems, and anti-money laundering requirements rapidly fragmented, and gold was reclassified as an ordinary commodity. In today's lack of unified institutional endorsement, gold trading naturally returns to a state of fragmentation, making the issue of non-standardization difficult to resolve in the long term.

In summary, the non-standardized frictions of traditional gold can be classified into three main categories:

Firstly, fragmentation in terms of time, geography, and price

Secondly, the high cost of physical links and custody verification

Thirdly, the lack of unified systems, taxation, and information disclosure.

Whether physical or paper gold, investors must navigate the aforementioned three types of friction.

Limitations of existing solutions

Gold ETFs attempt to alleviate physical friction through 'paper shares + compliant custody', but trading is still subject to securities exchange time restrictions, and cross-border ETFs are difficult to interconnect. The U.S. also classifies them as 'collectibles' subject to a 28% capital gains tax. More crucially, ETFs still require physical reserves, and storage, custody, and auditing continue to follow traditional processes.

Futures, options, and CFDs are similar: although the contract terms are standardized, they are primarily used for speculation or risk hedging, separating them from physical ownership; the physical delivery ratio is low (futures typically at <1%); once delivery occurs, it must revert to the old paths of gold extraction, inspection, and cross-border processes. Options and CFDs also involve high leverage, complex pricing, or counterparty risks, making them unsuitable for widespread ownership.

Essentially, these 'existing solutions' rely on traditional financial infrastructure (exchanges, clearing, custody) and centralized credit endorsement, constrained by regional regulation and technological limitations, unable to provide a truly global unified, 7×24, instant settlement standardized experience.

The standardization revolution of blockchain

Blockchain technology offers another way to trade gold, a technology that standardizes to the atomic level, shifting the trust basis of gold from physical inspection and legal contracts (high friction) to immutable smart contract code and transparent public ledgers.

What is standardized trading? Simply put, it means that regardless of where an asset is traded, its attributes, rules, and verification methods are completely the same. One unit of an asset represents the same value anywhere. The authenticity and integrity of the asset are automatically verified by algorithms, without the need for manual inspection. Anyone can participate in trading, with no geographical restrictions, no account requirements, and no minimum investment limits.

Take Bitcoin as an example; 1 Bitcoin held by any user at any time and place represents the same value. Bitcoin's verification is automatically completed by the blockchain network, without the need for manual inspection. Anyone can participate in Bitcoin trading with just a wallet address and no other restrictions.

The ERC-20 token standard further expands the concept of standardized trading. All tokens adhering to the ERC-20 standard have the same interface and functionality and can be used in any wallet and exchange that supports ERC-20. Standardization enables seamless interoperability between tokens.

Gold tokenization abstracts the value of physical gold assets into digital ownership using blockchain technology. The core of this process lies in the use of interchangeable token standards, such as the ERC-20 protocol on the Ethereum blockchain.

The ERC-20 protocol is the foundation of standardization. ERC-20 defines a set of universal rules that all tokens following this standard must adhere to, ensuring that each token has the same type and value as any other similar token, thus achieving inherent, programmable full interchangeability. Regardless of when, where, or by whom the PAXG token is held, they are technically identical and can be accepted and processed by any wallet or decentralized application.

The tokenization mechanism ensures that each digital token is pegged 1:1 to a specific quantity of physical gold stored in regulated and audited vaults. The innovation of tokenization technology decouples assets from ownership: investors no longer need to bear the physical friction costs of tangible assets, only needing to focus on the frictionless transfer of digital ownership.

Tokenization provides a systematic solution to the friction costs associated with traditional gold: the cost structure shifts from 'overcoming physical resistance' to 'leveraging network efficiency'.

In terms of time, on-chain assets can be traded 7×24 with real-time settlements, and continuous price discovery is no longer hindered by market closures or low liquidity periods. In terms of logistics, ownership transfers occur on-chain, replacing physical transportation, insurance, tariffs, and customs waiting with a few seconds of gas fee models, allowing transfers to be completed in seconds. In terms of financial thresholds, tokens allow for fractional holdings of as little as 0.001 ounces, enabling retail and small institutions to enter at the ten-dollar level.

The friction of storage and custody has also been restructured: projects like PAX Gold embed operating costs within spreads or redemption fees, claiming zero storage fees, overturning the traditional bps/year charging model. Public ledgers make each transaction and reserve record transparent and auditable, reducing investors' reliance on opaque intermediaries and strengthening market trust.

Representative standardized models

To allow these on-chain advantages to take root, gold tokens adopt a 'one-time standardization' approach for quality verification: the issuer completes physical inspection, storage, and continuous auditing during the minting process, and subsequent on-chain transfers only need to rely on a traceable ledger to maintain credit, avoiding the inefficiencies of repeated verification in traditional markets.

1. PAXG: regulated in New York, pegged 1:1 to the gold bars of the London Bullion Market Association, with zero storage fees and supports immediate redemption.

2. XAUT: 1:1 gold bar token, can be redeemed for physical gold at designated vaults, linking stablecoin networks and gold assets.

3. Matrixdock XAUM: A token launched for the Asian offshore market, completing custody audits, on-chain disclosures, supporting APIs and layered compliance.

These models collectively embody the tokenization path of 'one-time verification, full trust throughout', with key differences reflected in regulatory jurisdictions, fee structures, and redemption mechanisms.

Thus, physical gold bars remain constrained by a 5×24 trading window and high logistics inspection costs; gold ETFs/futures, while lowering custody thresholds, are still hampered by exchange timeframes and management fees; tokenized gold encapsulates a 'direct standardization' experience with 7×24 on-chain trading, second-level settlements, fractional holdings, and zero storage fees (like PAXG) alongside transparent smart contracts.

Conclusion and Outlook

The reason traditional gold has long been 'non-standard' is primarily due to the fragmentation of time windows, geographic boundaries, purity inspections, regulation and tax systems, storage custody, price settlement, and even information disclosure; the historical legacy of futures and non-standard products amplifies these frictions. In short: disparate standards across multiple stages lead to exponentially rising migration costs.

Essentially, gold is still subject to the hard constraints of physical logistics and multiple jurisdictions. The physical transfer case from London to Shanghai shows that once it crosses borders, it must face the intersecting influences of regulations, customs, and inspections; while ETFs and futures, as 'paper gold', make trading more convenient, they only split frictions across different channels without eliminating ownership transfer, time, or geographical restrictions. Paper gold lowers the threshold but does not rewrite the underlying rules.

Blockchain separates the value of gold from physical carriers, with ERC-20-based tokens recording ownership, supporting 7×24 circulation, and automatically verifying, directly eliminating pain points such as logistics, storage, access barriers, and information opacity. This signifies a leap from 'conditional standardization' to 'intrinsic standardization': standards are first solidified in code and then mapped to physical assets.

Traders can replace part of their gold trading with tokenized gold, maintaining physical gold bars for extreme risk hedging while using tokenized gold and similar products for daily liquidity, hedging, and tactical allocation.

Regulators need to unify the classification of physical tokens, capital gains tax, and information disclosure requirements, focusing on reserve transparency and redemption mechanisms, allowing 'code standardization' to truly gain institutional endorsement.

Looking ahead, tokenized gold will become the main bridge connecting global physical gold reserves with the digital financial ecosystem.

The standardization revolution in the gold market has just begun.