Putting RWAs to work in DeFi
The growth of RWAs has led to over $32 billion of assets flowing onchain.
Most of these are low-risk assets such as T-bills, and increasingly other asset classes such as equities.
The leading commodity onchain is gold. With over $4.9 billion in value tokenised, it has paved the way for tokenisation, given its unique profile as a store of value.
However, most onchain products are limited: they allow users to purchase spot gold, with little follow-up on how to ensure this gold is used productively onchain.
This results in inefficiencies that could affect the value and utility of onchain products relative to their Traditional Finance (TradFi) alternatives.
This article focuses on what we believe is the next wave of RWA adoption, with a focus on making these assets yield-generating.
As part of this, we use Enhanced as a case study and focus on its upcoming Gold Volatility Income Vault, which uses PAXG. It is the first of Enhanced “Thesis Vaults”, where users can express defined outcomes and payoffs using options (and more binary instruments in the future). This specific vault is designed using covered call options, a category that has often been underrepresented but offers unique advantages for its purpose, as it allows both yield-generating strategies and hedging, as a step towards creating yields on typically non-income-generating RWAs such as gold.
The development of the onchain RWA ecosystem has just started.
Are vaults using options the big unlock to make RWAs productive?
Let’s dive into it, starting with the opportunity to make gold productive.
Making Gold Productive
Gold is a $30 trillion asset class and the first commodity to have opened the route to onchain tokenisation, as we mentioned in our previous research report. However, while there is over $4.9 billion of gold onchain, the overwhelming majority of this capital is still sitting idle and does not generate yield.
The emergence of Traditional Finance (TradFi) products, such as covered call ETFs, has enabled many to leverage options to generate premium income or hedge their gold holdings.
Nonetheless, these products feature the usual trade-offs of being TradFi products, such as limited accessibility, high expense ratios, management fees, brokerage fees, KYC and custody requirements. For instance, GLDI, the most established gold covered call ETF (a similar strategy used by Enhanced) charged a 0.65% expense ratio, deducted before any yield accrues to investors.
This is why Enhanced decided to focus on gold. Onchain gold solutions exist, but are currently limited: most are spot-based and do not offer any yield.
Furthermore, gold is the largest asset onchain by market capitalisation and also benefits from a historical period where:
The price of gold reached an all-time high in April 2026
More investors are trying to get gold exposure due to its role as a store of value
Geopolitical and macroeconomic volatility has been at an all-time high in recent years
This makes it a perfect candidate for covered calls: it provides strong premiums while exhibiting a rather measured, range-bound price action.
The attempt to make onchain gold a productive asset is the natural evolution of RWAs onchain: the first wave of growth focuses on pervasiveness and on broadening access to these assets. The next one, arguably more important to differentiate these assets from their offchain counterparts, is ensuring they are efficient and productive.
Vaults are a perfect way to package this.
Enhancing Yield
Enhanced is launched with a focus on bridging the gap between RWA assets and their onchain productivity.
It does so by recognising the unique profiles of each asset and of retail and institutional investors and by encapsulating these nuances within structured strategies that provide yield for RWAs.
For gold, they focus on thesis vaults using covered call options.
Leveraging Options
Options have always struggled to achieve broader onchain adoption compared to other primitives like perpetuals. This is often attributed to the complexity of option trading, which requires education and skill. Since not everyone might be familiar with them, we make sure to explain covered call options and how Enhanced uses them.
A covered call allows the optional sale of a share only if the share reaches the strike price at expiration. In exchange, the seller can receive a premium while continuing to hold the stock (or the commodity in the case of the first Enhanced vault).
Users leveraging covered calls have a rather neutral/slightly bullish view of the underlying assets: they expect minor movements and collect yield during the holding period. However, in some cases, covered calls might also be used as a hedge after an asset has grown steadily in price. Both these cases fit the profile of gold as an asset perfectly.
Covered call users are basically spot long, as they hold the asset, while having an option short position that generates a premium.
Covered calls provide a reliable premium, cushion losses, and also cap the potential upside. For this reason, they are better suited to less directional (e.g. moderately bullish), more passive investors.
The RFQ System
The PAXG vault’s underlying mechanism leverages a Request for Quotes (RFQ) system.
In the backend, the deposited asset gets auctioned in batches to the best bids(by top market makers) from RFQ system, and options are written onchain. Users then receive the premium upfront.
There is also a manual RFQ feature that is open to access and is expected to gradually attract more market makers, institutions and retail investors to ensure a fair premium on the options.
Anyone participating can sell covered calls directly against their holdings and define custom parameters for execution (e.g. strike, tenor, direction). In the future, the range of available instruments can be expanded to buying and selling options on any asset beyond gold, including any ERC-20.
Trades are signed by both parties, executed atomically and cannot be altered by the operators, ensuring fair quotes.
The RFQ system is appealing to any large treasury holding assets that need to be periodically rebalanced or have specific terms of sale, thereby helping to monetise the assets.
Enhanced targets the broader structured products market, as the RFQ system can be leveraged for asset classes beyond gold, thus ensuring future expansion.
The PAXG Volatility Income Vault
The first Thesis Vault launched by Enhanced will be the PAXG Volatility Income Vault.
It will focus on leveraging PAXG’s volatility to generate premiums for users.
The vault will leverage covered calls to allow users to earn an option premium on gold.
The vault will work as follows:
It will subscribe to European-style options. They can only be exercised on the expiration date, meaning funds will be locked during epochs
Users can deposit both PAXG and USDC (swapped to PAXG)
The strike price is expected to be 103-107% out of the money (OTM), meaning the strike price is usually between 3-7% compared to the gold spot price, while dynamically adjusted to reflect market conditions
Options epochs will be bi-weekly (14 days, 26 epochs a year)
Charges a protocol fee of 0.019% on capital at the end of each epoch (0.5% annually)
To make this more practical, let’s see what it means for a user to deposit gold in the vault as well as what happens at expiration in different scenarios.
To make this concrete, we consider a user who deposits gold in the vault (which sells a covered call on it). When the option expires:
If the price of gold is above the strike price, the option is settled, and users receive the value of the option they subscribed to, plus the premium in USDC. The cost of an In The Money (ITM) option is the forgone upside in the epoch. In this case, users forgo the potential upside beyond the strike price.
Let’s have a practical example with an initial gold price of $100 and a strike price of $105.
If, at the time of expiry, the price is $107, the option is exercised: users receive their upside and the premium up to the strike price (from $100 to $105), while they forgo the upside of the extra $2 from $105 to $107.
If the price of gold is below the strike price, the call option expires worthless and is not exercised, and the user retains their gold holdings as well as the premium generated. Given its current strategy configuration, this is the targeted case and is expected to be the most common. The covered call does not protect against downside risk, but only provides a cushion through income. If gold fell in price, the vault would hold the same amount but be worth less in dollar terms.
The particularity of the Enhanced vault configuration is that it allows users to opt in to different settlement modes that dictate how premiums are distributed.
The default settlement option is the Compounding Mode, where every premium earned in USDC is automatically compounded, swapped into PAXG and added to the deposited funds in the next epoch. This is a classic auto-compounding position, better suited to long-term gold investors.
The optional mode is the Income Mode, where every premium in USDC is deposited into a separate balance that can be withdrawn at any time. This strategy is more suitable for users looking to accumulate and generate USDC income from their gold assets (similar to dividends), which is very appealing for those with large treasuries of idle assets.
Users can simply toggle between modes before any epoch starts.
Here is an example of how the two settlement modes perform differently, leveraging a strategy backtest on gold spot from Jan 2010 to April 2026:
The end-to-end workings of the vault are illustrated with a diagram:
The PAXG vault is not focused on maximising premiums. Rather, it focuses on a more conservative strategy: retaining its gold as much as possible by staying OTM while still generating premium income for users.
Food for Thought
Vaults are evolving from a single strategy to a multi-strategy range, set to cover the nuances of RWAs’ asset categories and investor profiles.
Making the assets that are now idle productive onchain is the number one priority for both yield providers and users holding these assets.
The Enhanced gold vault is a suitable example of how options and covered calls can provide additional income streams in the form of premiums for PAXG holders.
As one of the main issues with options was their complexity, in this setting, option working is abstracted in the background, making it seamless for users.
Through these products, investors can now earn yield on their gold, a massive step toward making onchain RWAs as productive as offchain alternatives, with benefits in accessibility, automation and configuration. A clear example of this is the two different types of settlements, which can be easily switched through a toggle.
Other benefits include transparent pricing and fees and the flexibility to deposit and withdraw at every epoch without strict lockups,
We expect this to be the starting point, as vaults have proven to be the most suited primitive for making onchain RWAs productive. Enhanced itself can leverage the RFQ for a broader range of assets, including stocks, and more - gold is just the first proof of concept.
More strategies and asset coverage will be fundamental to ensure significant capital allocation. Once the CLARITY Act is fully passed, friendly regulation will make it easier to bootstrap liquidity and AUM.
We will be watching these developments very closely.
written by @francescoweb3 ✍️
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Disclaimer: This article was produced in collaboration with Enhanced. Castle Labs applies the same standard to sponsored content as in our independent research. We strive to be accurate, unbiased and educational. Commissioned partnerships provide resourcing and distribution, not editorial control.