According to a report by the World Gold Council (WGC), Indian households are the world’s largest gold holders. Including the gold stored in the temples, these total holdings amount to approximately 25,000 tons, with an estimated value of approximately $1.5 trillion.
In particular, gold’s central role in Indian culture, where it is considered a store of value, a symbol of wealth, and a fundamental part of many rituals, contributes to its important status, reaching almost 56 percent of India’s projected nominal GDP by 2026.
Massive liquidity release in India
The huge capital locked up in India’s gold reserves could be converted into massive liquidity through the tokenization of real-world assets. Converting physical Indian gold into digital tokens enables fractional ownership, enhances 24/7 liquidity and facilitates decentralized lending. This could position India as a global leader in Web3 and commodity tokenization.
Traditionally, gold held by Indian households is culturally entrenched and passed down through generations, forming a hedge against inflation. Tokenization of real-world assets could be the ideal bridge to convert these physical gold bars and jewelry into regulatory compliant digital tokens on the blockchain.
Following the principles of RWA tokenization, each token represents a specific fractional share of physical gold held in an institution’s vault. This process instantly frees up large amounts of liquidity from previously illiquid assets.
What tokenized gold can do for the Indian market
The tokenization of India’s vast gold reserves will fundamentally change the way borrowing works in emerging markets. This will allow citizens to deposit tokenized gold in decentralized finance (DeFi) or regulated central bank protocols to secure instant loans. This model eliminates middlemen by implementing blockchain-based smart contracts to automate the lending process and eliminate the high fees and lengthy paperwork associated with traditional pawnshops.
It is worth noting that the automatic price feed associated with this system ensures that borrowers receive transparent, real-time market prices for their collateral. On the other hand, in the event of a violation of the loan terms, the smart contract will liquidate only the exact portion of tokenized gold needed to cover the debt and protect the remaining assets.
Another potential feature of India’s tokenized gold ecosystem includes democratized investing. Tokenization allows ownership to be divided into milligrams. This means anyone can invest in gold for just a few rupees. Therefore, the custodial debt is eliminated. Additionally, tokenized gold can be traded 24 hours a day on the secondary market with instant settlement. This eliminates the wide buy-sell spreads that local jewelers charge.
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