Enhanced Launches PAXG Covered Call Yield Vault to Generate Returns for On-Chain Gold

Author: Castle Labs

Compiled by Deep潮 TechFlow

DeepChain Summary: On-chain RWA assets have reached $32 billion, but 90% of gold tokens are sitting idle in wallets. Enhanced turns PAXG into yield-generating assets using covered call options—users earn premiums without needing to understand options. This is the first step in moving RWA from merely being "brought on-chain" to actually "working," and gold is just the beginning.

On-chain RWA size has surpassed $32 billion.

The majority are low-risk assets, such as U.S. Treasury bonds, and the proportion of other asset classes, such as stocks, is also growing.

Gold is the largest physical commodity on-chain, with a tokenized value exceeding $4.9 billion, paving the way for tokenization as a store of value.

However, most on-chain products have limited functionality: users can only purchase physical gold, but no one addresses how to generate returns on that gold on-chain afterward.

This results in on-chain products being undervalued and less practical compared to traditional finance (TradFi) products.

This article focuses on what we believe is the next wave of RWA: enabling these assets to generate yield.

Using Enhanced as an example, we focus on its upcoming Gold Volatility Yield Vault, which utilizes PAXG. This is Enhanced’s first “View Vault,” allowing users to express specific market expectations and capture returns through options (with more binary tools to follow). The vault employs a covered call strategy—a technique that has been undervalued but offers unique advantages: it generates income while providing hedging, marking the first step toward making yieldless RWA assets like gold profitable.

The on-chain RWA ecosystem has just begun.

Will the options vault be the key to making RWA truly work?

Let’s start by discussing how to make gold generate returns.

Gold is a $30 trillion asset class and the first commodity to pioneer on-chain tokenization. Yet, although over $4.9 billion worth of gold exists on-chain, the vast majority of these funds remain idle and generate no yield.

Traditional financial products, such as covered call ETFs, enable many people to generate premium income or hedge their gold positions using options.

However, these products suffer from the common drawbacks of traditional financial products: limited accessibility, high fees, high management fees, broker commissions, and KYC and custody requirements. For example, GLDI, the oldest gold-covered call ETF (which uses a strategy similar to Enhanced), charges a 0.65% fee, which is deducted before investors see any returns.

This is why Enhanced decided to focus on gold. On-chain gold solutions exist, but they are currently limited: most are spot-based and offer no yield.

Moreover, gold is the largest asset by market capitalization on-chain and is currently in a historic period:

In April 2026, gold prices reached a new all-time high.

More investors are seeking to allocate gold due to its role as a store of value.

Geopolitical and macroeconomic volatility has been at historical highs in recent years.

This makes gold an ideal underlying asset for covered calls: it offers substantial premiums while exhibiting relatively mild and range-bound price movements.

Making on-chain gold a yield-bearing asset is a natural evolution of on-chain RWA: the first wave of growth focused on popularizing and expanding access to these assets; the next wave, perhaps more important, is to differentiate them from their off-chain counterparts by ensuring they are efficient and yield-generating.

The vault is the perfect way to bundle all of this together.

Enhanced aims to bridge the gap between RWA assets and their on-chain productivity.

The approach involves identifying the unique characteristics of each asset class, as well as retail and institutional investors, and encapsulating these nuances into structured strategies that generate yields for RWA.

For gold, they focus on the strategy of using covered call options vaults.

Compared to other on-chain derivatives like perpetual contracts, options have long struggled to achieve broader adoption. This is often attributed to the complexity of options trading, which requires learning and skill. Since not everyone is familiar with options, we’ve ensured clear explanations of covered calls and how Enhanced uses them.

Covered call allows the seller to optionally sell the stock only if it reaches the strike price at expiration. In exchange, the seller receives a premium while continuing to hold the stock (or, in the case of Enhanced’s first vault, the commodity).

Users employing covered calls hold a neutral to slightly bullish view on the underlying asset: they anticipate modest price movement and aim to generate income during the holding period. However, in certain cases, covered calls can also serve as a hedge after the asset has experienced steady appreciation. Both scenarios align perfectly with the characteristics of gold.

Covered call users are essentially spot longs, as they hold the underlying asset while maintaining a short option position that generates premium.

Covered calls provide a reliable premium and cushion losses, but they also cap potential upside. Therefore, they are better suited for investors with a weak or mildly bullish directional outlook who prefer a more passive strategy.

The underlying mechanism of the PAXG vault utilizes a request-for-quote (RFQ) system.

On the backend, deposited assets are batch-auctioned to the best bids in the RFQ system (from top market makers), and options are signed on-chain. Users receive the premium in advance.

An additional manual RFQ feature is now open for access and is expected to gradually attract more market makers, institutional investors, and retail investors to ensure fair option premiums.

Any participant can directly sell covered calls on their holdings and define custom execution parameters (such as strike price, expiration, and direction). In the future, the range of available tools can be expanded to include options on any asset beyond gold, including any ERC-20 token.

The trade is signed by both parties and executed atomically, cannot be altered by the operator, ensuring fair pricing.

The RFQ system is attractive to any large treasury holding assets that require periodic rebalancing or have specific sale terms, helping to facilitate asset liquidity.

Enhanced to target a broader structured products market, as the RFQ system can be applied to asset classes beyond gold, ensuring future expansion.

The first vault launched by Enhanced is the PAXG Volatility Yield Vault.

It will focus on generating premium for users by leveraging the volatility of PAXG.

The vault will use covered calls to help users earn option premiums on gold.

The vault operates as follows:

Subscribe to European options. Exercise is only possible on the expiration date, meaning funds are locked up for the duration of the period.

Users can deposit PAXG and USDC (converted to PAXG).

The strike price is expected to be 103–107% out-of-the-money (OTM), meaning it is typically 3–7% above the spot price of gold, and is dynamically adjusted to reflect market conditions.

The option cycle is biweekly (14 days, 26 cycles per year).

A funding fee of 0.019% is charged at the end of each funding period (annualized at 0.5%).

To make this more practical, let’s examine what it means for a user to deposit gold into the vault and what happens upon maturity in different scenarios.

Specifically, assume a user deposits gold into the vault (where the vault sells covered calls on it). When the option expires:

If the gold price is above the strike price, the option is settled, and the user receives the value of their subscribed option plus a USDC premium. The cost of an in-the-money (ITM) option is the upside potential forgone during the period. In this case, the user forgoes any potential price increase above the strike price.

Let’s use a practical example: the initial gold price is $100, and the strike price is $105.

If the price is $107 at expiration and the option is exercised: the user gains the increase up to the strike price plus the premium (from $100 to $105), but forfeits the additional $2 increase from $105 to $107.

If the gold price is below the strike price, the call option expires worthless and is not exercised, allowing the user to retain their gold position along with the premium received. Based on the current strategy configuration, this is the intended outcome and is expected to be the most common scenario. Covered calls do not protect against downside risk; they only provide a buffer through income generation. If the gold price declines, the vault holds the same quantity of gold but with a lower USD value.

The enhanced vault configuration allows users to select different settlement modes to determine how the premium is allocated.

The default settlement option is compound mode, where the USDC premium earned on each transaction is automatically compounded by converting it to PAXG and adding it to your deposit for the next cycle. This is a classic automated compounding position, ideal for long-term gold investors.

The optional mode is an income mode, where a premium on each USDC deposit is allocated to a separate balance that can be withdrawn at any time. This strategy is ideal for users who wish to accumulate and generate USDC income (similar to dividends) from their gold assets, making it particularly appealing to those with large idle asset reserves.

Users can easily switch modes before the start of any cycle.

Here is an example illustrating the performance difference between two settlement modes, using a backtest of a strategy on spot gold from January 2010 to April 2026:

End-to-end operation of the vault illustrated in a diagram:

The focus of the PAXG vault is not to maximize premium, but to adopt a more conservative strategy: retaining as much gold as possible by staying out of the money, while still generating premium income for users.

The vault is evolving from a single strategy to a multi-strategy range, addressing nuances across RWA asset classes and investor profiles.

Generating yield on currently idle assets on-chain is the top priority for yield providers and users holding these assets.

Enhanced Gold Vault is a suitable example of how options and covered calls can provide PAXG holders with an additional income stream in the form of premiums.

Since one of the main challenges with options is their complexity, in this scenario, options operate in the background in an abstracted manner, providing a seamless experience for users.

Through these products, investors can now earn yield on gold—a significant step toward making on-chain RWA as yield-generating as its off-chain counterparts, with advantages in accessibility, automation, and configuration. A clear example is the ability to easily switch between two different types of settlement with a single toggle.

Other advantages include transparent pricing and fees, along with the flexibility to deposit and withdraw at each cycle without strict lock-up periods.

We expect this to be just the beginning, as the Vault has proven to be the most suitable primitive for generating yield on-chain RWA. Enhanced itself can extend RFQ to a broader range of assets, including equities and more—gold is merely the first proof of concept.

Broader strategy and asset coverage are essential for ensuring substantial capital allocation. Once the CLARITY Act is fully enacted, favorable regulation will make it easier to launch liquidity and manage asset scale.

We will closely monitor these developments.