Paper Gold Versus Digital Gold: Why 98% of Your Gold Investments Are Actually Risky

Most investors believe they own physical gold bars. In reality, 98% of them only hold a “piece of paper” with a promise—commonly known as “paper gold.” According to Björn Schmidtke, CEO of Aurelion (Tether’s gold treasury company), this is the hidden threat forming within the global gold market. While gold prices have surged over 80% in the past 12 months, the systemic risks behind paper gold investments are actually growing larger.

What Is Paper Gold Really, and Why Is It Dangerous?

When someone buys gold through an ETF (exchange-traded fund), they are not actually purchasing gold bars. They are buying shares of the fund. “When buying these shares, investors think they have purchased physical gold bars, but in reality, they have bought a piece of paper that says, ‘I owe you gold,’” Schmidtke explains.

This is the core problem of the paper gold system: investors lack clear proof of ownership of which bars they actually own. They only hold IOUs (Iou is a promise to pay), not physical assets. This system has run smoothly for decades because most investors have never demanded physical delivery. However, this smooth operation is an illusion that is fragile.

Schmidtke estimates that 98% of total gold exposure is effectively debt, not actual ownership. Billions of dollars in paper gold are circulating without clarity on which physical bars actually back that ownership.

The Coming Crisis: The “Seismic Event” Scenario

Imagine this scenario: fiat currency values plummet drastically, and millions of investors simultaneously want to take physical gold. That’s what Schmidtke calls a “seismic event”—a moment when confidence in the paper gold system collapses.

When that happens, serious logistical problems will arise. “You can’t just move several billion dollars worth of physical gold in a single day,” he says. If investors lack clear proof of ownership of specific bars, chaos will ensue in the distribution process. The price of physical gold will skyrocket while paper gold prices lag far behind, creating a liquidity crisis for derivatives holders.

History has proven this. In a similar silver market event, premiums for physical gold surged dramatically while spot prices remained flat. “We believe the same will happen in the gold market if such an event occurs,” Schmidtke warns.

The Solution: Onchain Gold and Blockchain Technology

To understand why paper gold is dangerous, consider the property analogy. A developer offers a real estate investment with a simple system: buy 10 shares, receive a promise to deliver 10 units of housing. No title deed, just a share. When the developer makes the same promise to thousands of other investors, the situation becomes chaotic. There’s no proof of who owns which unit, and delivery will take a long time without fairness guarantees.

Similarly, with paper gold. The solution is to eliminate this barrier through verified and traceable ownership.

This is why Aurelion has shifted to Tether Gold (XAUT), a blockchain-based token backed by physical gold. Each XAUT token is directly linked to a specific gold bar allocated and stored in a Swiss vault. There’s no ambiguity—investors know exactly which bar they own.

With onchain gold, the “ownership deed” of that gold can be transferred globally within seconds on the blockchain, while the physical asset remains secure in the vault. This bridges the gap between digital speed and physical security. Although physical delivery still takes time, investors can at least trust that their gold is tracked transparently and can be fully redeemed.

At current prices around $5.53 per XAUT, this system provides access to digital gold without sacrificing ownership verification.

Long-Term Strategy: From Paper Gold to Actual Ownership

Aurelion has completely revamped its treasury strategy by adopting XAUT as its core asset. The company now holds 33,318 XAUT tokens worth approximately $184.5 million (based on current prices). This is not a short-term arbitrage strategy—Schmidtke clearly states that the company will only consider selling if there is a “significant and sustained discount” to the underlying assets.

“How you own gold is just as important as whether you own gold,” Schmidtke says. The company focuses on consolidating Tether Gold equity that can endure over time. To support this growth, Aurelion plans to raise more capital over the next year to expand their digital gold reserves.

This perspective reflects a deep understanding of the vulnerabilities in the modern gold market. While paper gold remains an easy choice for most investors, its hidden risks continue to grow. Blockchain technology and digital gold tokenization like XAUT offer a way out: transparency, verification, and security in a scalable solution.

For serious investors in long-term gold ownership, the question is no longer “do I own gold” but “how do I own gold with undeniable proof.” And this is what differentiates paper gold from onchain gold.