Author: Shaaran Lakshminarayanan, Co-founder of Mulitipli
DeFi gold products are fundamentally flawed.
Despite Tether Gold locking up over $800 million in tokenized gold, and Paxos Gold's locked amount being nearly equivalent, the yields average less than 1%, while traditional finance generates 3%-5% returns on the same asset. The so-called innovations of blockchain technology somehow make gold less profitable.
Disappointingly, while DeFi promised to democratize complex financial strategies, in the realm of gold, we are left with diluted products that underperform compared to century-old investment methods.
Most DeFi gold protocols do not generate real yields—they print tokens. Many DeFi tokens pegged to gold dangle double-digit "emission" yields to attract deposits. Those enticing annual percentage yields (APY) rely on printing new tokens rather than generating new income, so when token prices drop or emissions stop, yields often collapse to zero.
The protocols do not create value but rather redistribute existing value through inflation, which is a classic Ponzi structure disguised as innovation.
This pattern repeats in gold DeFi, where protocols launch unsustainable emission rewards to attract total locked value (TVL), only to watch yields plummet when reality sets in. Token emissions create the illusion of productivity while destroying long-term value by diluting existing holders, as the protocols fail to generate real returns.
Gold investors want exposure to gold. DeFi forces them into volatile asset pairs and liquidity pools, which guarantees suboptimal outcomes. During a gold rebound, liquidity providers suffer impermanent loss as their gold is automatically sold for stablecoins, missing out on the upside they sought by investing in gold.
These LP structures are also capital inefficient, forcing investors to allocate half of their funds into low-yield stablecoins instead of gold exposure. The risk-return calculations become absurd. Investors accept the risk of impermanent loss and reduced gold exposure, with returns barely exceeding what they could earn by directly holding stablecoins.
DeFi protocols lack the infrastructure to replicate traditional financial strategies on a large scale. Gold futures often trade at a premium to spot prices, especially in a contango market. Sophisticated traders can capture this spread by holding physical gold and shorting futures contracts, which is precisely what DeFi should excel at automating.
As a result: institutional participants continue to earn attractive returns on gold, while DeFi investors are trapped in inflation rewards and forced complexity. Real capital remains in traditional finance, while DeFi scrambles for scraps.
New protocols will ultimately address these fundamental flaws through market-neutral arbitrage strategies rather than token printing. With this shift, they generate real yields by capturing positive spreads.
Investors can gain pure gold exposure with institutional-level returns. This approach democratizes strategies that previously required a minimum investment of $5 million and direct institutional relationships, allowing hedge fund opportunities to be accessed with just $1,000 and a wallet.
The best DeFi products eliminate unnecessary complexity, providing gold exposure to investors without forcing diversification. Single-sided staking generates yields through arbitrage strategies while maintaining the investment thesis.
This explains why tokenized gold underperforms compared to decades-old physical gold strategies. The industry prioritizes rapid deployment over sustainable economics, TVL growth over actual returns.
The failure of gold DeFi reflects a broader issue in how we think about yield generation. Too many protocols prioritize TVL growth over sustainable economics, optimizing for launch metrics rather than long-term value creation.
Real solutions require infrastructure investment in appropriate derivatives trading capabilities, risk management systems, and institutional-grade execution. This is far more challenging than launching another liquidity mining program.
However, the market is maturing as investors increasingly recognize the distinction between real yields and token emissions, demanding actual value creation rather than higher APY numbers.
The next wave of DeFi adoption will come from real yields, not speculation, as traditional finance faces increasing regulatory pressure and institutional investors seek alternatives that can provide comparable returns and better transparency. Gold represents the perfect testing ground, with an easily understood asset class, documented arbitrage opportunities, and proven demand for yields.
The question is not whether gold DeFi will work. It is which protocols will ultimately fulfill the initial promise with existing technology, proven strategies, and ready markets.
The gold rush continues, but this time it may truly yield gold.
Opinion author: Shaaran Lakshminarayanan, Co-founder of Mulitipli.
Related: SmartGold, Chintai to tokenize $1.6 billion in IRA gold
This article is for general informational purposes only and is not intended and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Original article: “Opinion: Why DeFi Gold Products Underperform Traditional Finance?”
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