Gold has always been the institutional default for store-of-value. Tokenised gold — backed 1:1 by allocated bullion under VARA Category 1 — combines the physical-backing credibility of bullion with the operational accessibility of digital tokens. Dubai's positioning as a global precious-metals hub (DMCC processes around 25% of global gold trade) makes it the natural venue for institutionally-credible commodity tokenisation.
This article walks through the structuring of a Category 1 commodity token, with focus on gold (the dominant case) and the equivalent framework for silver, platinum-group metals and industrial metals. The worked example: 1,000kg of LBMA good-delivery gold tokenised into 1,000,000 tokens, each representing 1g, vaulted in DMCC, with Big-Four monthly attestation.
Why gold tokenises well.
- Fungibility. One gram of LBMA gold is interchangeable with any other — tokens map cleanly to grams.
- Vaulting infrastructure. DMCC, Brink's, Loomis, Malca-Amit operate audit-grade UAE vaults.
- LBMA good-delivery standard. Globally accepted accreditation; bars are serialised, refiner-listed, and verifiable.
- Liquidity. Underlying gold is one of the deepest physical commodity markets globally — redemption is operationally tractable.
The structural architecture.
| Layer | Entity / Mechanism | Function |
|---|---|---|
| Bullion owner | Issuer SPV or dedicated bullion-holding SPV | Legal owner of physical bullion; bears risk of loss subject to vault insurance |
| Vault | DMCC / Brink's / Loomis / Malca-Amit Dubai vault | Allocated, segregated, insured custody |
| Token issuer | DMCC SPV (natural fit given DMCC's vault infrastructure), VARA-licensed as Category 1 issuer | Issues tokens, owns bullion (or beneficial interest). Must be Dubai-incorporated outside DIFC — DIFC and ADGM sit outside VARA's perimeter and cannot host the licensed issuer. |
| Attestation provider | Big-Four or specialist firm | Monthly physical-count attestation; serial-number verification |
| Redemption agent | Issuer or specialist provider | Processes redemption: bar delivery, cash settlement, or both |
The allocation question.
The single most important structural question for commodity tokens is allocation:
- Allocated bullion. Specific serialised bars are owned by the issuer SPV, segregated in vault. Bars are identified by refiner, serial number, weight and assay. This is the institutional standard.
- Unallocated bullion. The issuer has a credit claim against a bullion bank for a specified weight; no specific bar attribution. Less credible for tokenisation — introduces counterparty risk.
VARA approval is materially easier for allocated structures, and the institutional market expects allocated. Unallocated structures, where used, require substantial additional disclosure and counterparty-credit framework.
The lesson from every credible commodity-token launch is the same: allocated bullion, audit-grade vaulting, independent monthly attestation, and a redemption pathway that physically works. Anything less invites a Tether-style attestation crisis.
Worked example: tokenising 1,000kg of LBMA gold.
- Acquisition. Issuer SPV acquires 1,000kg of LBMA good-delivery gold — typically 80 bars (each 12.5kg good-delivery bar) from accredited refiners.
- Vaulting. Bars deposited in DMCC vault under allocated-storage agreement; serialised attestation issued.
- Insurance. Vault carries comprehensive insurance (typically Lloyds-syndicated); additional issuer insurance may overlay.
- Token issuance. 1,000,000 tokens issued, each representing 1g of allocated gold.
- Attestation. Monthly physical-count attestation by Big-Four firm; serial-number verification.
- Pricing. Tokens trade in line with spot gold, with management-fee deduction (typically 25-50bps per annum).
- Redemption. Token holders above defined threshold (e.g. 1,000 tokens = 1kg) can redeem physical bars; smaller holders redeem cash-settled.
The silver, PGM and industrial-metals variation.
- Silver. Similar framework; LBMA silver good-delivery standard. Higher storage-volume requirement per dollar of value (silver is less dense by value).
- Platinum-group metals (platinum, palladium, rhodium). LPPM good-delivery standard. Smaller market than gold/silver; tokenisation feasible but liquidity considerations apply.
- Industrial metals (copper, aluminium, nickel, zinc). LME warehouse network; logistical complexity is higher; warehouse-receipt mechanics overlay the token structure.
Tax and substance.
The UAE Free Zone Person framework applies favourably to issuer SPVs for commodity tokens — commodity custody and tokenisation are Qualifying Activities under most interpretations, subject to substance. Pillar Two scope is rare at the single-issuer level but may engage at group level.
Practical structuring considerations.
- Fee structure. Storage fee (typically 25-50bps for gold), management fee, redemption fee — transparent disclosure required.
- Refiner selection. LBMA-accredited refiners only for gold/silver; concentration risk in any single refiner.
- Vault selection. Audit-grade with appropriate insurance; segregated allocated storage agreement.
- Currency. USD-denominated typical; AED-denominated viable for UAE-onshore investor base.
- Secondary trading. Liquid secondary markets on VARA-licensed venues are increasingly available.
Conclusion.
Tokenised commodities under VARA Category 1 deliver an institutionally-credible vehicle for digital-native commodity exposure. Gold is the dominant case; silver, PGMs and industrial metals follow the same framework with operational variations. Dubai's combination of VARA regulatory framework, DMCC vaulting infrastructure, and global precious-metals trading positioning makes it the natural jurisdiction for the next generation of commodity tokenisation. Neo Legal advises on the full structuring lifecycle — issuer SPV, vault arrangement, attestation framework, VARA engagement, and primary/secondary distribution.
