Tokenised commodities under VARA:
gold, silver and industrial metals.

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.

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.

1. Acquisition. Issuer SPV acquires 1,000kg of LBMA good-delivery gold — typically 80 bars (each 12.5kg good-delivery bar) from accredited refiners.
2. Vaulting. Bars deposited in DMCC vault under allocated-storage agreement; serialised attestation issued.
3. Insurance. Vault carries comprehensive insurance (typically Lloyds-syndicated); additional issuer insurance may overlay.
4. Token issuance. 1,000,000 tokens issued, each representing 1g of allocated gold.
5. Attestation. Monthly physical-count attestation by Big-Four firm; serial-number verification.
6. Pricing. Tokens trade in line with spot gold, with management-fee deduction (typically 25-50bps per annum).
7. 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.

1. Fee structure. Storage fee (typically 25-50bps for gold), management fee, redemption fee — transparent disclosure required.
2. Refiner selection. LBMA-accredited refiners only for gold/silver; concentration risk in any single refiner.
3. Vault selection. Audit-grade with appropriate insurance; segregated allocated storage agreement.
4. Currency. USD-denominated typical; AED-denominated viable for UAE-onshore investor base.
5. 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.