Stablecoins are a type of cryptocurrency that are designed to maintain a stable value by being pegged to another asset. Pax Gold (PAXG) is a stablecoin that is backed by physical gold and is the world's first regulated gold-backed digital asset. PAXG is built on the Ethereum blockchain and its price is pegged to the spot price of gold and is redeemable for physical gold stored in London vaults. PAXG is developed and maintained by Paxos.
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Detailed functioning of the stablecoin
Pax Gold (PAXG) is an asset-backed token, where one token represents one fine troy ounce of a London Good Delivery gold bar, stored in professional vault facilities. Anyone who owns PAXG has ownership rights to that gold under the custody of Paxos Trust Company. Since PAXG represents physical gold, its value is tied directly to the real-time market value of that physical gold. PAXG gives customers the benefits of actual physical ownership of specific gold bars with the speed and mobility of a digital asset. Customers can also have fractional ownership of physical bars.
On the Paxos platform, customers can convert their tokens to allocated gold, unallocated gold, or fiat currency (and vice versa) quickly and efficiently, reducing their exposure to settlement risk. PAXG is available for trading on Paxos’ itBit exchange and other crypto-asset exchanges (Binance, Kraken, Uniswap), lending platforms, and elsewhere within the crypto ecosystem. At any time, PAXG holders can lookup the serial number, value and physical characteristics of their vaulted gold just by entering their Ethereum wallet address on the PAXG lookup tool on here.
The amount of gold representing the total supply of PAXG is at a 1:1 ratio – one fine troy ounce of gold equals one PAXG token. The total supply of gold representing PAXG changes continuously as the market capitalization of PAXG increases and decreases.
There is a difference between allocated and unallocated gold. When a customer trades for allocated gold bars, they receive ownership rights to specific gold bars that are held in a precious metal dealer’s vault on the customer’s behalf. Allocated gold is identifiable with a unique serial number, purity rating, and weighting for each bar.
When a customer trades for unallocated gold, they do not have actual ownership of specific gold bars; instead, they have a general entitlement to a certain quantity of gold that an institution promises to deliver. This is hypothetical gold, but the liability lies with the institution in question. This is similar to the way a traditional bank operates – customers don’t own specific notes, but they have credit that can be paid out upon request.
What are the fees associated with Pax Gold?
On-Chain Transaction fees: there are two kinds of fees that occur when you send PAXG on the blockchain:
- Standard ‘gas’ fee: sending digital assets on Ethereum requires computing power, or ‘gas.’ Just like any other Ethereum token, $PAXG requires standard gas fees to be paid in ETH to compute the transaction
- PAXG on-chain transaction fee: PAXG charges an additional fee, which is set at 0.02% of the amount of PAXG sent on the blockchain
Whenever PAXG tokens are sent on Ethereum network, Paxos charges a small (0.02%) fee of the amount of PAXG sent on the blockchain. This means that 0.02% of on-chain transaction fees are covered by users. For example, if you want to send 10 PAXG from one Ethereum address to another, and you want to ensure that the receiver gets at least 10 PAXG after fees, you should send at least 10.0020004001 PAXG in total, to cover the cost of the on-chain transaction fee. Whereas, if you initiated a transfer of 10 PAXG, the receiver would get 9.998 PAXG after fees.
Storage fees: Paxos does not charge gold storage fees to its customers at this time
Creation and Destruction fees: whenever you buy or sell $PAXG from your Paxos account (on either the wallet dashboard or PAX Gold pages), Paxos charges small fees (see fees in the picture below) to process both the creation and destruction of PAXG tokens. This includes all sales or conversions of PAX Gold to or from USD, gold bars or unallocated gold.
These fees do not apply when purchasing & selling tokens through their exchange order book, or anywhere else outside the Paxos wallet.
Pros and Cons
- Backed by physical gold
- Provides exposure to the price of gold without the need to physically own or store gold
- Built on the Ethereum blockchain
- Regulated by the New York State Department of Financial Services
- Its price stability is dependent on the stability of the spot price of gold
- Smart contract, market and operational risks
Former Chairman of the FDIC, 2006-2011
TIME Magazine’s 100 Most Influential People
Consumer Federation of America’s Public Service Award
Managing Director of Allen & Company
Former U.S. Senator for New Jersey
1979-1997 Former Chairman of the Senate Finance Committee
Co-Founder & Managing Partner
Oak HC/FT, Former Venture Partner at Oak Investment Partners, Institutional Investor’s FinTech Finance 40 list
Former Chairman of Thermo Electron
2005-2020 Former Chairman, President, and CEO of Lotus Development Corporation, 1984-1995 (acquired by IBM)
Former Chief Investment Officer
University of Notre Dame Board member
TIFF Investment Management Board member (The Vanguard Group, Inc.)
Partner, Declaration Partners LP
Former Head of Strategic Investments at Stone Ridge
Former Head of Private Markets at BlackRock.
Company: Paxos Trust Company, LLC
History overview of Paxos Trust Company
You can find more info about fees in Pax Gold whitepaper.
Reserves and Security
PAXG is backed by physical gold stored in London vaults, and its reserves are independently audited and subject to regular inspections. PAXG's reserves are maintained at a level that is sufficient to fully back all PAXG in circulation.
Here you can find every month's PAXG Transparency Report.
On-chain security: PAXG is built on the Ethereum blockchain therefore its security protection is provided by the nodes, which protect the entire network using Proof of Stake (PoS) consensus.
History of Stablecoin
PAXG was launched in 2019 as the world's first regulated gold-backed digital asset. It was created as a response to the demand for a secure, stable store of value in the cryptocurrency market. Since its launch, PAXG has gained significant traction and is now widely recognized as a leading commodity-backed stablecoin.
Importance and Uniqueness
Cost-efficient: Paxos offers PAXG at a lower cost structure than that of other gold tokens, with a low minimum purchase amount and zero storage fees.
Secure and regulated: The allocated gold that backs PAXG is custodied in LBMA vaults and audited monthly. Paxos is a trust company and custodian regulated by the New York State Department of Financial Services.
No settlement risk: Purchasing PAXG is free from settlement and credit risk, with near instantaneous settlements.
Redeemable: PAXG is the only gold token you can redeem for LBMA-accredited Good Delivery gold bullion bars. Institutional customers can also redeem for unallocated Loco London Gold, or for USD at current gold market prices at any time.
PAXG may be subject to government regulations, which could limit its use or negatively impact its stability. Additionally, PAXG is not decentralized, which means that it is managed by Paxos and may therefore be subject to censorship or other forms of control.
Like any other asset, PAXG is subject to market, credit, and operational risks. The value of PAXG is tied to the spot price of gold, and its price stability is dependent on the stability of the spot price of gold.
PAXG is a well-designed and innovative stablecoin that offers a new and accessible way to invest in gold. Its backing by physical gold, regulation by the New York State Department of Financial Services, and secure and transparent reserve system all help to ensure its credibility and legitimacy. However, as with any investment, it is important to carefully consider the potential risks and to do your own research before investing in PAXG.