Beyond Speculation: Ethereum as Infrastructure
Ethereum is most widely known in the context of the 2021 DeFi and NFT manias, neither of which generated much interest among commodity professionals. That is understandable. But framing Ethereum purely through the lens of retail speculation misses the more consequential development that has been building quietly since 2022: the use of Ethereum and compatible blockchains as settlement and custody infrastructure for real-world assets, including commodities.
The core proposition is this: a smart contract on a public blockchain can encode the terms of an asset transfer, execute settlement automatically when conditions are met, and maintain an immutable record of ownership — all without a central counterparty. For commodity markets built on a web of bilateral credit relationships, clearinghouses, and correspondent banks, this is a genuinely significant proposition, even if the path from demonstration to widespread adoption remains long.
Tokenised Gold: The Most Advanced Use Case
Gold tokenisation is the most mature application, and it is worth examining in some detail because it illustrates both the promise and the limitations of the broader approach.
Several products currently allow holders to take exposure to allocated physical gold via tokens on Ethereum or Ethereum-compatible chains. Paxos Gold (PAXG) and Tether Gold (XAUt) are the largest by market capitalisation. Each token represents a claim on a specific quantity of gold — typically one troy ounce — held in a regulated vault. The token can be transferred peer-to-peer without going through a broker, used as collateral in decentralised lending protocols, or redeemed for physical delivery subject to minimum quantities.
The advantages over traditional allocated gold ownership are real. Settlement is near-instant, rather than the two-day standard settlement cycle. Transfer is global and can occur at any hour without banking intermediaries. Divisibility is to eight decimal places, allowing fractional ownership at a precision that vault storage does not permit economically.
The limitations are equally real. The trust model still depends on the issuer: if Paxos or Tether were to become insolvent, misrepresent their reserves, or face regulatory action that prevented redemptions, token holders would face the same counterparty risk as any other creditor. On-chain transferability does not eliminate custodial risk; it relocates it. The audit processes for these products have improved — both PAXG and XAUt publish monthly attestations from major accounting firms — but they have not yet achieved the level of scrutiny that, say, the SPDR Gold Shares ETF undergoes.
For traders, the more immediate question is whether tokenised gold provides any trading edge over the alternatives. In most cases, the answer is currently no: liquidity in tokenised gold is a fraction of spot gold or GLD liquidity, and the on-chain transaction costs (Ethereum gas fees) can be non-trivial during periods of network congestion. The value proposition is clearest for users in jurisdictions with restricted access to traditional financial products, or for use cases involving collateral mobility across DeFi protocols.
Oil and Energy: From Receivables to Carbon Credits
The tokenisation of oil and gas assets is at an earlier stage than gold, but several meaningful pilots have moved beyond proof-of-concept. In 2023 and 2024, a number of commodity trading firms and energy majors experimented with using smart contracts to settle oil cargo trades, replacing letter-of-credit workflows that typically involve five or more correspondent banks and can take days to clear.
The theoretical efficiency gains are significant. A letter of credit for a standard oil cargo involves document verification, bank-to-bank communication, and manual reconciliation steps that introduce both delay and fraud risk. A smart contract that automatically releases payment upon digital confirmation of cargo inspection and vessel arrival data could compress settlement from days to hours and reduce the administrative overhead substantially.
Several trade finance consortia, including Vakt and Komgo (both founded with backing from major commodity trading firms), have been working on exactly this problem since 2018. Progress has been slower than initially projected, primarily because changing settlement workflows requires the simultaneous participation of multiple counterparties, each of which faces transition costs and incumbent-system inertia. But the direction of travel is clear.
Carbon credits represent a more contentious application. The voluntary carbon market has been beset by integrity problems — verification failures, double-counting, and outright fraud have periodically surfaced in ways that have damaged confidence in the market. Several projects have attempted to use blockchain-based registries to address these problems, with the argument that an immutable on-chain record of credit issuance, transfer, and retirement makes double-counting structurally impossible.
The logic is sound in principle. The difficulty is that the integrity problem in carbon markets is not primarily a record-keeping problem — it is a verification problem. A blockchain cannot independently verify that a forest preservation project actually preserved forests, or that a methane capture project actually captured methane. The “garbage in, garbage out” limitation applies: if the underlying verification process is weak, recording the result on a blockchain does not strengthen it. This has been the central criticism of projects like Toucan Protocol and KlimaDAO, both of which brought large quantities of older, lower-quality credits on-chain and created tokens backed by assets whose real-world integrity was questionable.
The DeFi Collateral Question
One of the more interesting developments in 2024 and 2025 has been the use of tokenised real-world assets as collateral in decentralised lending protocols. MakerDAO (now Sky), which issues the DAI stablecoin, has allocated a significant portion of its collateral pool to tokenised US Treasury bills via protocols like Ondo Finance and Superstate. Several proposals have been made to include tokenised gold and, experimentally, tokenised commodity receivables.
For commodity traders, the DeFi collateral market is relevant for a specific reason: it creates a new source of demand for tokenised commodities that is somewhat independent of traditional commodity market dynamics. If tokenised gold or oil receivables can be pledged as collateral to borrow stablecoins for use in other DeFi strategies, the total demand for the tokenised form of the asset may exceed the demand that would exist from pure commodity exposure alone. This can create basis relationships between tokenised and non-tokenised prices that are interesting from a relative value perspective.
The risks here are commensurate with the novelty. Smart contract bugs, oracle failures (the on-chain price feeds that DeFi protocols rely on to value collateral), and liquidity spirals during market stress events have all caused significant losses in DeFi protocols in previous years. Participation in these markets requires a genuine understanding of the technical risks involved, not just the economic ones.
Regulatory Trajectory
The regulatory environment for tokenised assets has clarified meaningfully over the past two years, though important uncertainties remain. In Europe, the Markets in Crypto-Assets (MiCA) regulation, which came into full effect in December 2024, provides a framework for asset-referenced tokens — including those backed by commodities — that gives issuers and users a reasonably clear compliance path. The UK’s Financial Conduct Authority has been moving toward a similar regime through its digital securities sandbox.
In the United States, the regulatory picture is more complex. The Commodity Futures Trading Commission and the Securities and Exchange Commission have both asserted jurisdiction over different aspects of digital assets, and the lack of a comprehensive framework has created significant compliance uncertainty for firms seeking to offer tokenised commodity products to US investors. The political environment in 2025 appears more amenable to legislative progress on this question, but timelines remain uncertain.
What Commodity Traders Should Be Doing Now
For most commodity trading firms, direct participation in tokenised asset markets is premature from both a liquidity and a regulatory compliance perspective. But several preparatory steps are worth taking now.
First, internal education. The technical concepts involved — how smart contracts work, what oracles do, how custody in digital asset markets differs from traditional custody — are not intuitive for people trained in traditional commodity markets. Building that understanding across risk, operations, and legal teams is a multi-year process that should start now.
Second, monitoring of the infrastructure providers. Firms like Ondo Finance, Centrifuge, and Maple Finance are building the plumbing that will likely underpin real-world asset tokenisation at scale. Understanding what they are building, where their risk models are strong or weak, and which regulatory relationships they have developed is valuable intelligence for anyone who will eventually need to choose between competing providers.
Third, participation in working groups. The CFTC’s digital asset working groups, the Bank for International Settlements’ Project Atlas and similar initiatives, and commodity exchange-led pilots are all worth engaging with. The firms that shape these standards now will have a meaningful advantage when adoption accelerates.
Conclusion
Ethereum and the broader smart contract ecosystem will not replace the infrastructure of commodity markets in the near term. The transition costs, regulatory uncertainty, and liquidity limitations are all real constraints that will take years to work through.
But the direction of travel is clear enough that commodity professionals who dismiss this space entirely are making a mistake. The same logic that drove electronic trading, then algorithmic trading, then high-frequency trading in commodity markets — that technology which reduces friction and cost tends, eventually, to be adopted — applies here. The question is not whether tokenisation changes commodity markets, but when and how quickly.
Traders who have done the homework will be positioned to move quickly when the infrastructure matures. Those who have not will find themselves catching up.
