How to Tokenize Precious Metals and Commodities

Gold crossed $5,000 per ounce in early 2026. Silver posted a 140%+ rally in 2025. Yet most investors still access these assets through ETFs, futures, or physical bars locked in vaults - instruments designed decades ago that carry unnecessary friction, minimum thresholds, and opaque supply chains.

Tokenization offers a different model. By representing physical commodities as digital tokens on a blockchain, issuers can create fractional, tradable, and programmable ownership backed 1:1 by the underlying asset. The tokenized gold market alone now exceeds $5.1 billion in market capitalization, with the broader tokenized commodities sector surpassing $4.4 billion in total value locked.

This guide covers how commodity tokenization works in practice, what legal and custody structures are required, and how to launch a compliant commodity-backed token offering in Europe.

How Commodity Tokenization Works

At its core, commodity tokenization creates a digital twin of a physical asset. Each token represents ownership of a defined quantity of a specific commodity - one gram of gold, one ounce of silver, one metric ton of wheat - stored in a verified, auditable location.

The structure typically involves four layers:

Physical asset custody: The commodity is stored with an accredited custodian (e.g., LBMA-accredited vaults for precious metals, licensed warehouses for agricultural goods). Regular audits verify that the physical reserves match the number of tokens in circulation.

Legal wrapper: A securities-compliant instrument connects the token to the physical asset. This may be a tokenized note, a certificate of ownership, or an asset-referenced token under MiCA regulations, depending on the jurisdiction and structure.

On-chain representation: Tokens are minted on a blockchain, with each token referencing a specific quantity of the underlying commodity. Smart contracts manage issuance, transfer restrictions, and redemption rules.

Redemption mechanism: Token holders can either trade their tokens on a secondary market or redeem them for the underlying physical commodity (or its cash equivalent), depending on the offering terms.

What Makes Commodities Particularly Suited for Tokenization

Precious metals and commodities have characteristics that make them natural candidates for tokenization:

They are standardized. Unlike real estate or intellectual property, a gram of gold is fungible. This makes fractional ownership straightforward - there is no ambiguity about what each token represents.

They have established price discovery. Commodities trade on global exchanges with transparent pricing, which simplifies valuation and secondary market trading for tokenized versions.

They serve as a store of value. Investors already hold gold and silver as portfolio hedges. Tokenization does not need to convince anyone of the asset's value - it simply improves access and reduces friction.

Custody is well-understood. The infrastructure for storing and auditing physical precious metals is mature. Connecting this custody layer to a blockchain does not require reinventing storage - it requires bridging the two systems.

Legal and Regulatory Framework in Europe

Launching a commodity-backed token in the EU requires navigating two overlapping regulatory domains: securities regulation and the Markets in Crypto-Assets (MiCA) framework.

Asset-Referenced Tokens (ARTs): Under MiCA, tokens that reference a basket of assets or a single commodity may be classified as asset-referenced tokens, requiring the issuer to maintain reserves, publish a white paper, and comply with specific governance rules. However, commodity tokens that function more like traditional securities may fall under national securities laws instead.

Securities classification: In Germany, for example, a tokenized gold note structured as an Inhaber-Schuldverschreibung (bearer bond) backed by physical gold falls under BaFin's securities supervision. The issuer needs either a prospectus or a valid exemption (e.g., offerings under EUR 8 million under the EU Prospectus Regulation).

Custody requirements: The physical commodity must be held by a qualified custodian with proper insurance and audit procedures. The digital token custody may involve a separate crypto custody license, depending on the jurisdiction.

The regulatory setup varies by country, which is why platforms that operate across multiple EU jurisdictions need to handle compliance at both the national and EU level.

Step-by-Step: Launching a Tokenized Commodity Offering

1. Source and Secure the Physical Asset

Partner with an accredited custodian who can provide proof of reserves. For precious metals, this typically means LBMA-accredited vaults with serial number tracking and regular third-party audits. For agricultural commodities, licensed warehouses with quality certification.

The custody agreement should specify: storage location, insurance coverage, audit frequency, and the process for redemption (physical delivery or cash settlement).

2. Define the Token Structure

Decide what each token represents and how it connects to the physical asset:

Denomination: 1 token = 1 gram of gold, 1 ounce of silver, or another standard unit.

Legal instrument: A tokenized note, participation right, or ART depending on regulatory classification.

Redemption rights: Can holders redeem for physical delivery? Cash equivalent? Or is secondary market trading the primary exit?

Fee structure: Storage fees, management fees, and any redemption costs that are passed through to token holders.

3. Set Up Compliance Infrastructure

Before issuing tokens, establish the regulatory and compliance framework:

KYC/AML verification for all investors, with ongoing monitoring.

Transfer restrictions built into the smart contract (e.g., using ERC-3643) that enforce investor eligibility on every transaction.

Prospectus or exemption filing with the relevant national authority.

Ongoing reporting requirements including proof-of-reserves reports, NAV calculations, and investor communications.

4. Tokenize and Distribute

Use a tokenization platform to mint the tokens and distribute them to investors:

Token minting: Create the digital tokens with embedded compliance rules and link them to the custody records.

Investor onboarding: Verified investors access the offering through a regulated interface, review the data room (prospectus, custody proof, terms), and subscribe.

Primary sale: Investors purchase tokens at the offering price. Funds are used to acquire (or have already been used to acquire) the physical commodity.

Listing and trading: Once the primary sale closes, tokens can be traded on a secondary market, subject to the same compliance rules.

5. Manage the Ongoing Lifecycle

Post-issuance management includes:

Regular proof-of-reserves audits published to investors.

Price feeds linking the token value to the spot price of the underlying commodity.

Redemption processing for investors who choose to exit by redeeming for the physical asset or cash.

Regulatory reporting to the supervising authority.

Common Structures in the Market

The tokenized commodity market has settled on a few dominant models:

1:1 backed tokens like Pax Gold (PAXG) — each token represents one fine troy ounce of London Good Delivery gold stored in LBMA vaults. Market cap exceeds $2.3 billion as of early 2026.

Commodity fund tokens — a single token represents a share in a fund that holds a diversified basket of commodities. This model works well for agricultural commodities where direct physical redemption is impractical.

Revenue-sharing tokens — tied to commodity production (e.g., a mining operation or solar farm) rather than stored physical goods. Investors receive a share of production revenue rather than owning the commodity directly.

Each structure has different regulatory, custody, and operational requirements. The choice depends on the underlying asset, the target investors, and the issuer's operational capacity.

What to Look for in a Tokenization Platform

A platform for commodity tokenization should provide:

Multi-jurisdiction compliance: Ability to onboard investors across EU member states with jurisdiction-specific rules.

Flexible asset structuring: Support for different legal wrappers and redemption mechanisms.

Proof-of-reserves integration: Connectivity with custody providers for auditable reserve verification.

White-label deployment: For commodity dealers, precious metals traders, or financial institutions that want to offer tokenized commodities under their own brand.

Secondary market infrastructure: Enabling token trading between verified investors with built-in compliance.

ONINO provides this infrastructure for commodity issuers and financial intermediaries across Europe. Whether tokenizing a single gold offering or building a full commodity investment marketplace, the platform handles issuance, compliance, investor management, and lifecycle operations.

Ready to launch?

ONINO's infrastructure handles compliance, investor onboarding, and reporting from day one -- so you can focus on structuring your deal and building your investor base. Platforms go live in under 24 hours, with no internal technical build required.

Book a Demo