The crypto ecosystem has come a long way from what it used to be and stablecoins have become a significant part of that system as it continues to grow and mature. Stablecoins that we have grown accustomed to are usually pegged to a particular currency, however Paxos is bringing about a change and is now offering a token backed by gold. One of the most intriguing products offered by the platform is PAX Gold (PAXG), which was announced by the company on Wednesday.
The New York-based cryptocurrency company is a regulated financial institution that aims to create a global and frictionless economy by building infrastructures, specifically designed to enable smooth movement between physical and digital assets. Paxos provides a handful of products that makes it popular in the crypto space.
As the name suggests, it is an asset-backed token where one PAXG token represents one fine troy ounce of a London Good Delivery gold bar, that is stored in professional vault facilities.
According to the company, the token will provide customers with the opportunity to have actual ownership of one of the most precious elements, all the while having the speed and mobility that comes with owning a digital asset. So it is kind of a “best of both worlds” scenario; Paxos will even be providing the serial number of the corresponding gold bar in London to its PAXG customers.
Furthermore customers will also have the liberty of buying and selling their PAX Gold tokens to anyone they please via various blockchain networks, which will then register the reassign the ownership rights to the gold. Moreover users will also be able to convert their tokens to allocated gold, unallocated gold, or fiat currency and vice versa, in a more quick, efficient and less risky manner on the Paxos platform.
The Need For Paxos
Paxos gold-pegged token is first of its kind, which begs the question: does the general public really need or want such a digital asset? It’s not like people don’t own gold under the traditional system, why even bring blockchain in the equation? Well, according to Paxos CEO Chad Cascarilla there are two main reasons motivating this endeavor.
Firstly, Cascarilla believes that with PAXG we have the opportunity of solving the one of the biggest problems with gold as an asset, immobility. He believes that the entire process of moving gold around is cumbersome to say the least and by putting gold on the Ethereum blockchain, Paxos is hoping to make real gold highly tradable.
Secondly, Paxos is providing people with the cheapest way to own gold directly, mainly because the platform will not be charging annual custody fees from its customers. Cascarilla further added PAX Gold is also cheaper and more redeemable than holding gold through an ETF.
Additionally, while there are no charges for custody fees the Paxos service isn’t entirely free. Because securing gold is a costly process, as the company will have to pay Brinks in order to guard the gold that is sitting the London vault, the cost of which, will be coming out of the packets of Paxos users.
Cascarilla revealed that PAX Gold will make money by charging a small premium on the gold, and also by charging a “tokenization” fee at time of initial purchase that will be 1% of the purchase of a single ounce, however he did add that will drop significantly for larger purchases.
The platform will also be charging a transfer fee of 0.02% from its customers, in case they want go buy or sell the token on a blockchain network. The PAXG tokens will be available over cryptocurrency exchanges such as Genesis amongst others, however their availability will be restricted to only non-U.S. based ones for now.
Of course no company can go through the process of launching any type of currency, be it digital, without the approval from regulatory authorities. Paxos seems to be fairing much better than Facebook’s project Libra in this aspect with all its products.
According to Reuters, In September 2018, Paxos was authorized by New York to offer its first stablecoin, pegged to U.S. dollars, Paxos Standard. In total, DFS has approved three asset-backed tokens issued by Paxos: Paxos Standard (PAX), PAX Gold (PAXG), and BUSD.
PAX Gold’s entrance in the market coincidently coincides with the ongoing debate between the traditional financial world and the digital financial world; whether gold or Bitcoin, the most famous cryptocurrency, is a superior store of value for investors. PAXG just might provide a middle ground where they both can coexist.