Author: @G_Gyeomm(Four Pillars)
Compiled by: AididiaoJP, Foresight News
Key Points
Gold is an asset class exceeding $30 trillion, yet it generates no cash flow. Traditionally, there have been only two honest ways to make gold productive: lend it out, or sell its volatility (call options). The covered call strategy is time-tested, but the yield was only accessible to institutions and asset managers, burdened by layers of management fees, issuer credit risk, fixed strike prices, and opaque pricing.
On-chain gold has surpassed off-chain gold in custody and liquidity, but it lags behind in yield. Borrowing demand is sparse, and AMM LPs erode gold's upside exposure through impermanent loss.
Enhanced is a general-purpose structured products infrastructure. For volatility yield, it executes covered calls via competitive RFQ auctions among institutional market makers, converting an asset's own volatility into consistent premium income.
The PAXG Volatility Yield Vault is the first product in Enhanced's "Thesis Vaults" series. These strategy vaults, created by the Enhanced team, use options (and later, binary event positions) to express a clear yield or outcome. For the Volatility Yield Vault, the goal is to make previously non-yielding assets start earning.
Gold is just the start. The same engine will expand to tokenized equities, commodities, and the broader RWA space, marking the beginning of a new generation of on-chain structured products: packaging clear outcomes into one-click vaults.
How Has Gold Always Worked?
Gold has historically been the bulkiest, laziest, and most inefficient asset. Physically heavy, liquidity-heavy, with high storage costs. It doesn't generate cash flow like bonds or stocks. The result: an asset class exceeding $30 trillion has served primarily as a store of value for centuries, with long-term holders permanently bearing opportunity costs.
Two Ways to Make Gold Productive
There are, of course, ways. There are two honest paths to generate yield from gold: lending it out, or selling its price volatility. The lending market came first, and the market for selling volatility deepened later.
Leasing: The Gold Lending Market
Like the roughly 300-year-old London Gold Market, gold leasing is one of the oldest practices in finance. Today, central banks and large holders lend gold to bullion banks, which then provide this gold to industrial users with hedging needs—refiners, jewelry manufacturers, miners.
The logic for borrowing gold is simple: borrow in gold, repay in gold, to hedge raw material price risk. Gold-using businesses borrow the physical gold itself instead of buying it with cash, repaying the same weight of gold plus a lease fee. Since liabilities are denominated in gold weight, product prices rise with gold prices, easing repayment pressure; when gold prices fall, businesses can buy gold cheaper to repay.
But this path has a natural yield cap. Gold lending income depends entirely on borrower demand. With thin and cyclical demand for borrowing gold, lease rates rarely exceed 1-2%, and even turned negative during the 2009-2011 zero-rate period, where lenders had to pay to lend gold out.
Moreover, how this yield is priced is hard to observe from outside the market. Outsiders could only track it indirectly through limited benchmarks like GOFO. After LBMA discontinued GOFO, public windows to track gold forwards and lease rates have largely disappeared. Ultimately, the gold lending market remains constrained by two bottlenecks: thin borrower demand and opaque price discovery.
Selling Volatility: From Forward Sales to Selling Call Options
Since gold itself has no cash flow, only its price and volatility can be financialized. The second method is to sell this price volatility. Miners sell expected production at a fixed future price, securing revenue even if gold falls at delivery, at the cost of forfeiting the opportunity to sell higher if gold rises.
This practice is time-tested, but problems arise when trading volume exceeds holdings or production capacity. If a producer presells more gold than it can actually deliver, it directly bears the difference between the contract price and market price when gold rises.
In 1999, Ashanti Goldfields built a large forward sales position. When gold prices surged after the European Central Bank's Gold Agreement limiting sales, its hedge book lost over $500 million, failing to meet margin calls, nearly bankrupt. What survived and became the industry standard was the covered call strategy.
Covered Calls, and Its Limitations
What is a Covered Call?
Selling a covered call option is giving away part of the upside potential of an asset you already hold in exchange for a premium. The difference from a naked forward sale is simple: you only sell the amount you have. You're not preselling gold you don't own, nor hedging beyond production capacity; you're just letting the market have a slice of the price ceiling of your held gold.
Example: A gold holder grants a right—if gold price rises more than 4% above current levels within two weeks, the counterparty has the right to buy at that price—and receives the price of that right (premium) in cash. Two outcomes follow:
Below 4%: Two weeks later, gold hasn't risen past 4%, the right expires worthless, and you keep the entire premium.
Above 4%: Gold rises past 4%, you must deliver gold at the agreed price. Even then, you keep the premium and the gains up to 4%, only forfeiting the part beyond 4%.
In either case, you're selling a slice of the price ceiling within your holdings, so even if gold surges and you forfeit excess gains, losses won't exceed your holdings, nor escalate into margin calls. If naked forward sales are betting with empty hands, selling covered calls is more like lending out the price ceiling of your owned asset for a period, collecting rent.
Traditional finance packaged this safer form into products. GLDI, listed on NASDAQ in 2013, was an early gold covered call product, structured to sell call options on gold ETFs monthly, paying the premium as a floating coupon. First-year APY fluctuated between 9% and 26%. Demand persists, stronger. The gold yield ETF IAUI, launched in 2025, reached nearly $500M AUM within a year; over 60 new option-income ETFs launched in 2025 alone.
Limitations of Covered Calls
The demand and track record for covered calls are well proven. Vaults holding gold, institutions holding stocks, and wealth managers layering option strategies on client portfolios all rely on the same principle. But covered calls aren't perfect, as investors must bear substantial costs and structural constraints before receiving premium income:
Management fees: GLDI charges 0.65% annual fee, deducted before premiums reach investors. Add brokerage, KYC, custody, exchange hours, etc., and yield is further eroded.
Issuer credit risk: GLDI isn't strictly an ETF but an unsecured note (ETN) issued by Swiss financial group UBS. Investors don't directly own gold but hold UBS's promise to pay returns. Even if gold price and option strategy work, the credit itself can be impaired.
Simple strategy: Covered call products sell calls on a fixed schedule. This generates steady income but cuts off upside repeatedly during rapid price appreciation. Worse, most such strategies in TradFi are monthly. Inflexible, often severely capping upside gains. The representative stock covered call ETF PBP returned 7.2% annually over the past decade, while S&P 500 returned 15.7%. The gap comes from setting strikes close to spot and fixing expiry to monthly. Even small rallies cut excess gains, and positions are hard to adjust mid-swing during sharp rallies.
Opaque price discovery: Strike price, tenor, etc., are set by the manager. Investors can hardly verify at which market, at what price, the options are actually sold. They see the final distribution but struggle to know how premiums were formed through competition or how much leakage became costs.
In short, a path to harvest gold volatility exists. But that path is only open to institutions and asset managers, bundled with fees, issuer credit, fixed strikes, and opaque pricing. Yield exists, but the entire road to it is mediated.
Thus, finance naturally evolved towards stripping intermediaries. On-chain offers a compelling blueprint here. Yet, examining existing on-chain yield sources, on-chain gold lags behind off-chain gold, at least in yield.
On-Chain Gold Lags Off-Chain in Yield
What On-Chain Promised vs. Reality
On-chain initially promised much: trading assets without intermediary layers, verifying every settlement on-chain, and most importantly, composability—combining assets with other financial products like Lego. This meant a future stripped of issuer credit, opaque price discovery, and distribution costs. But this promise was only half fulfilled.
Take tokenized gold as the most representative example. The on-chain gold market exceeds $5 billion, with Q1 2026 tokenized gold spot volume over $90 billion. Now anyone with a wallet can trade gold 24/7, buy fractional units for a few dollars, no brokerage account needed. On-chain gold clearly offers a better alternative in custody and liquidity alone.
But shift to a yield perspective, and the story reverses. Off-chain gold holders can earn double-digit covered call coupons via products like GLDI. In contrast, on-chain holders of the same gold have far fewer options. Look at the two most common on-chain yield sources: lending and AMM LP.
Lending
One path is lending out tokenized gold for yield, but actual options are extremely limited. Look at Aave's XAUt market: ~$40M supply, but XAUt borrowable liquidity is 0, max LTV is 0. For risk management, it's closer to accepting deposits but prohibiting borrowing and collateral usage.
The first reason is liquidation risk. Tokenized gold order books are shallower than ETH or USDC, oracle updates less frequent, making it hard to guarantee no-slippage handling during large-scale liquidations. Aave thus chooses to treat XAUt as isolated collateral, accepting it sparingly with conservative parameters.
More fundamentally, demand for borrowing gold itself is thin. ETH has staking yield, leverage demand, and multiple roles as foundational DeFi collateral, naturally generating borrowing demand. Gold is closer to a hedge and store of value asset, with ~10% annual volatility. Almost no one pays interest, bears liquidation risk to borrow it. Ultimately, lending hasn't made tokenized gold a productive asset.
AMM LP
Another method is providing liquidity with tokenized gold and USDT to earn trading fees. Uniswap's XAUt/USDT pool shows ~9% APR. But this number is far from what LPs actually get. The displayed APR is just recent fee annualization, before impermanent loss.
LPs split capital into gold and USDT, providing liquidity on both sides. AMMs rebalance pool weights by selling the appreciating asset and buying the relatively lagging one. When gold rises, the pool hands appreciated gold to the market, receiving USDT back. The result: part of the upside that should belong to pure gold holders is diluted into impermanent loss for LP positions.
Thus, LP yield can't be judged by displayed APR. Spot gold rose over 60% in 2025, XAUt/USDT LPs earned ~9% in fees, but holders could hardly capture full price appreciation. Ultimately, this suits very few. For those holding gold as a store of value, impermanent loss and range management burdens are unsuitable. LPs are better for investors willing to trade some gold upside for fee income.
Reimagining Structured Products On-Chain
Neither lending nor AMM LP became the answer for tokenized gold. One suffers from thin borrower demand, the other actively erodes the exposure gold holders seek to preserve. If this missing yield layer persists, has tokenization truly upgraded off-chain assets?
Bringing real-world assets on-chain isn't free. Issuance, custody, legal structuring, reserve management, contract risks—all carry costs. If paying these costs only gets atomic settlement and 24/7 trading, it's hard to argue benefits outweigh costs. In other words, yield isn't an add-on for tokenized assets; it's the minimum condition for on-chain transformation to be an upgrade, not a downgrade. Put differently, it's reimagining structured products on-chain—moving outcomes packaged with fees and intermediaries in TradFi into open, verifiable vaults.
Moreover, the missing yield layer manifests differently across asset classes. Assets already generating cash flow, like treasuries or private credit, can relatively easily port coupons on-chain. In contrast, assets like gold, commodities, equities with no native cash flow have no coupons to port; existing yield sources—whether lending, trading volume, or staking—are thin or absent.
Thus, on-chain assets need a layer distinct from existing yield sources. This layer needn't be a new invention. The covered call option examined earlier is one alternative. Coinciding with institutional capital moving on-chain, infrastructure capable of executing this proven TradFi strategy on-chain is gaining importance. Enhanced, as infrastructure for this yield layer, is noteworthy here.
Enhanced: A Structured Products Layer That Turns Volatility into Clear Outcomes
Enhanced is institutional-grade structured yield infrastructure for on-chain assets. Early on-chain finance focused on issuing and moving assets; the next step shifts to efficiently operating these assets. Enhanced aims to fill this missing yield layer with derivative-based strategies, packaging clear payoffs into one-click vaults.
Core Engine: The RFQ Auction Engine
The core of yield strategies is options. Users deposit assets, Enhanced creates a covered call position using those assets as collateral, and sends it to an auction competed by institutional market makers. The maker offering the best terms buys the option, and the premium returns to users. This is the structure converting an asset's own volatility into continuous yield.
Every option position in Enhanced starts with an RFQ (Request-for-Quote) auction. The flow:
- Taker (Requestor): The taker (institution, whitelisted holder, or vault) initiates an RFQ, defining the option it wants to sell against its holdings. It specifies trade terms: underlying asset, strike price, expiry, quantity, direction, collateral, leaving price blank.
- Market Makers (Quoters): Makers quote on this request. A maker signs a quote, attaching the premium it's willing to pay to these terms, locking all terms with its signature.
- Taker (Confirmer): The taker compares multiple maker quotes, selects one, and creates a matching confirmation signature.
- Operator (Executor): The backend operator relays both signatures to the on-chain gateway, which verifies signatures, opens isolated margin vaults, writes and sells the option, then routes the premium back.
To ensure auction integrity, Enhanced designs RFQs with a permissioned maker set. Only identified, vetted top-tier institutional market makers can submit quotes. Each maker goes through a signature onboarding process, submitting quotes with a unique signing key. Thus, each quote is signature-bound and single-use. On this foundation, the active maker list will expand as more partners complete onboarding and risk reviews.
Viewed this way, Enhanced itself is more a single option execution engine than a single product. The engine connects institutional makers and on-chain asset holders via competitive RFQ auctions, layered with two interfaces: a manual RFQ interface for institutions and large holders, and an automated vault interface for general users. Both share the same engine, same auctions, same settlement.
The Manual RFQ Interface
This is the direct engine access for institutions and large holders. They can directly sell covered calls against holdings, adjusting tenor, strike, quantity, direction as needed, building customized structures. After makers submit quotes, the trader selects and signs the desired quote, and the trade executes in a single atomic transaction. Because all terms are pre-signed, the operator cannot arbitrarily change them. Cash-secured puts and buying options will be introduced later.
This manual RFQ interface is designed for parties needing autonomous management of asset space. Foundation treasuries, sophisticated investors, public company crypto treasuries holding large assets all have needs to adjust selling timing and terms. For treasuries like Metaplanet or Sharplink with large on-book assets, it becomes a customized option execution channel to directly monetize holdings.
Thus, every term of a trade is fixed by both parties' signatures, settlement verified on-chain. The operator cannot change price or quantity mid-flight, and holders' assets are never moved beyond signed terms. It's a structure where institutions face the market directly, without relying on counterparty or intermediary trust.
The Vault Interface
This is the interface where vaults call the same option execution engine on behalf of depositors. A vault turns a clear outcome into a one-click product: depositors choose a strategy, the engine handles the option mechanics underneath.
Enhanced calls these strategy vaults "Thesis Vaults"—vaults created to express a single clear payoff or outcome. Each vault compresses a thesis typically built manually by mature trading desks (e.g., earning from volatility, or receiving a payout if a future event settles a certain way) into a single deposit. The first generation is built on options, with binary event positions to follow.
For the PAXG Volatility Yield Vault, it subsequently sells covered calls via RFQ auctions on a fixed schedule and distributes received premiums to depositors each epoch.
Each vault is created with fixed parameters covering underlying asset, collateral asset, strike quote asset, epoch length, deposit cap, minimum deposit, and target strike condition. Because the vault ID is determined by the hash of these parameters, once a vault is created, its conditions cannot be arbitrarily changed mid-flight. Tokenized gold is the first asset in line for this vault mechanism application.
PAXG Volatility Yield Vault: How Gold's Volatility Becomes Income
The PAXG Volatility Yield Vault is the first product in Enhanced's Thesis Vaults. Of course, gold is just the first applied asset; Enhanced's larger target market is the structured yield layer for the entire on-chain asset space.
However, starting with gold has clear reasons. First, gold's recent implied volatility is particularly suitable for covered call yield:
The strong 2024-2026 rally pushed gold implied volatility (GVZ) from low 20s to low 30s.
As an inflation hedge, gold's long-term trajectory is relatively gentle. The combination of high premiums and manageable price action is the most effective environment for covered call yield.
Another reason is it's the asset most lacking in on-chain yield. According to DeFiLlama, ~96% of PAXG and XAUT sits idle. This means most on-chain gold is held passively, not in any dedicated yield strategy.
The vault uses deposited PAXG as collateral to sell European-style covered call options. The strike is typically out-of-the-money (OTM), 3-7% above spot, with a two-week tenor. But strike price and option size aren't fixed; each cycle adjusts dynamically within an OTM range, reflecting market signals and price action.
The goal is to dynamically adjust the OTM range to capture sufficient premium while preserving as much gold exposure as possible. This is precisely its distinction from TradFi products executing on fixed monthly rules.
More specifically, this yield optimization toggles with market conditions. When gold implied volatility (GVZ) is high, premiums themselves are richer, allowing strikes to be pushed farther (higher OTM strikes), capturing sufficient premium while preserving more upside.
Conversely, during low volatility, flat price action, premiums thin, strikes tighten closer to spot to increase captured premium. In other words, even within the same biweekly tenor, the vault re-finds the balance between premium and upside to match the current volatility environment.
Once terms are set, the option goes directly to auction. Institutional market makers compete for this option in the auction, with the winning premium prepaid to depositors. Run through the numbers:
Deposit: Suppose a user deposits 10 PAXG worth ~$40,000 when spot gold is $4,000/oz.
Sell Option: Every two weeks, the vault sells a covered call using this PAXG as collateral. If this cycle's strike is $4,160 (4% above spot), the vault grants the maker a right—if gold exceeds $4,160 within two weeks, they can buy at that price—and receives the premium upfront.
Not Exercised: Two weeks later, gold hasn't exceeded $4,160, the call expires worthless. Depositors keep all 10 PAXG, take the full premium. Most cycles land here.
Exercised: If gold exceeds $4,160, say to $4,300, the maker exercises. In this case, depositors receive the premium and gains up to $4,160, only forfeiting the excess $140. Because only the difference is settled, depositors retain most of their gold position.
The result: if the winning premium for a cycle is 0.4% of the deposit, that's ~$160 yield on the $40,000 base. This cycle repeats ~26 times a year. Premiums vary with gold implied volatility, potentially richer during phases where implied volatility lifts to ~30%. During geopolitical uncertainty spikes, GVZ has even broken 40%. Based on operational expectations, premium yields roughly fall in the 4-14% APY range.
Compound Mode (Default): Premiums are automatically swapped for PAXG, added to next epoch's principal; if exercised, settlement proceeds are used to buy back gold to restore position. Suitable for long-term holders wanting to hold gold throughout cycles.
Yield Mode (Optional): Premiums accumulate as USDT in a separate balance, withdrawable anytime, even mid-epoch. Suitable for those wanting to pull cash flow from holdings without worrying about exit timing.
Protocol fees aren't charged upfront but settled per epoch. The vault charges a 0.019% protocol fee on deposited capital per epoch, ~0.5% annualized. Thus, users don't prepay fees but settle each epoch the vault runs. No separate withdrawal fee; this rate is fixed at vault creation and verifiable on-chain.
What's Different About Enhanced, and What It Accepts
Difference from First-Gen On-Chain Vaults
Enhanced's vault is reverse-engineered from all currently operating gold covered call ETFs in TradFi. Its differentiators can be listed: management fees comparable or lower than TradFi, no intermediary distribution layers, no KYC global access, 24/7 operation, biweekly tenor for faster theta capture, every fill, fee, and expiry transparently recorded on-chain.
Together, this signals a broader shift: the next wave of on-chain structured products won't operate like TradFi wrappers or early crypto vaults. They'll focus on clear, defined outcomes, hide underlying complexity, and operate with transparent execution.
Enhanced isn't the first vault selling volatility on-chain. In 2021, Ribbon Finance opened this model with Theta Vault, once reaching $170M TVL. First-gen vaults proved demand for structured yield is real but left clear weaknesses, which Enhanced is designed to address:
Auction-based price discovery: First-gen vaults sold options on a fixed schedule and rules. Once the process is predictable, makers could compress implied volatility ahead of auctions, buying options cheaply. Predictable one-sided supply led to premium compression. Enhanced lets multiple makers quote on each trade via competitive RFQ auctions, turning competition into depositors' premiums.
Holder-aligned strike selection: First-gen vaults underperformed in bull markets due to fixed strikes. Rapid price appreciation repeatedly cut off upside, forcing holders to forfeit gains. Enhanced uses farther OTM strikes and biweekly tenors, adjusting strike and option size each cycle based on market conditions. The goal is to preserve as much gold exposure as possible within the strategy.
Assets most lacking yield: First-gen vaults were limited to BTC and ETH. But these assets already have competitive yield sources like staking, lending; option-selling flows became predictable as vaults grew. Enhanced starts with RWAs most lacking yield. Gold has neither staking nor deep lending markets, making option premiums the most direct yield source.
Covered Calls Are Not a Free Lunch
Covered calls aren't a free lunch. They generate continuous premiums but at the cost of trading certain risks.
Capped upside: If gold rallies far beyond the strike within a cycle, depositors receive the premium and gains up to the strike but forfeit the excess. This is the inherent structural cost of all covered call strategies.
No principal protection: This vault isn't a principal-protected product. If gold price falls, the USD value of deposited assets declines accordingly. Additionally, if gold rallies far above strike and options are exercised, the quantity of PAXG held may decrease at cycle end. Even if USD value might be higher than start, token quantity itself changes.
Dependent on volatility: Yield is tied to gold implied volatility. If low-volatility environments persist, option premiums compress, narrowing yield advantages. The current ~30% GVZ environment is favorable but not guaranteed to persist.
Counterparty and contract risks: Counterparties are limited to identified, vetted institutional makers, using audited contracts (Opyn Gamma). But as an on-chain product, contract risk, oracle risk, and settlement risk still exist. Audits and TVL caps are mechanisms to reduce these risks, not eliminate them.
These characteristics clarify what this vault suits. Enhanced doesn't claim covered call strategies always outperform holding spot gold outright. It's far from a product for those wanting to ride a bull market to the top. It focuses on turning a gold position that otherwise yields 0% into an asset generating continuous income while preserving most underlying exposure.
Ultimately, On-Chain Capital Needs Wealth Management
Finally, what market is Enhanced ultimately targeting? In crypto, the narrative "capital is moving on-chain" is often discussed as a single event, but this flow has a clear sequence, and balance size—a key variable measuring this sequence—is often overlooked. What Enhanced does is also deeply tied to capital flows.
Today's on-chain activity is mostly concentrated in speculation. Prediction markets, perps, memecoins, TCG platforms—core is trading. This is natural when on-chain balance units are small. If you hold $100, the stronger incentive is to put that $100 into high-volatility, asymmetric upside trades.
But as user average balances grow, people no longer keep all assets solely in stablecoins, nor throw everything into high-risk trades. The focus shifts from "where to earn asymmetric excess returns" to "how to manage the assets I hold," i.e., entering the wealth management stage. At this stage, demand grows for holding spot assets like gold, equities, commodities, and making them yield while preserving spot exposure.
Thus, the next stage of on-chain maturity isn't more trading but innovative structured products. The problem is, this layer hardly exists today.
Enhanced aims to establish itself as the general structured products layer in this blank market. What follows is a new generation of on-chain structured products centered on clear outcomes. Each is a Thesis Vault: compressing institution-grade strategies typically usable only by sophisticated users into tools that let you express your thesis in one click.
The first application is the recently launched PAXG Volatility Yield Vault. On-chain gold is just the start; the same engine is expected to expand to tokenized equities, commodities, and broader RWA. Gold's volatility, previously only endured, now works for holders for the first time—that stage is the starting point.
