A Guide to PAX Gold

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Stablecoin issuer PAXOS recently introduced its first gold-backed cryptocurrency PAX Gold. In a press release published in September, the financial operator claimed that it’s “the first crypto-asset redeemable for physical gold.”

According to the report, it is also the first regulated digital gold product as it received approval from the New York State Department of Financial Services. As it’s an asset-backed cryptocurrency, ownership of a PAXG token is equivalent to 400oz of gold, which you can redeem at any time. As an ERC-20 token, it’s developed in the Ethereum blockchain.

Gold-backed stablecoin

Stablecoins or cryptocurrencies whose value is tethered to another asset like fiat money or gold are becoming more popular. After huge changes in regulation and numerous controversies in the crypto market, stablecoins rose from the aftermath. Unlike other cryptocurrencies which can lose value when they don’t take off, the lowest value a stablecoin can go is the value of the underlying asset. While USD-tethered tokens are the most common, more gold-backed assets are now being launched including the GramGold Coin.

In light of recent market uncertainties, however, gold and Bitcoin markets were seen as safe havens for institutional investors. Ripples from the Brexit negotiations and US-China trade skirmishes, to predictions of a global economic slowdown have contributed to gold’s increase in value. This has made it a key asset across markets. FXCM details how gold’s value is closely linked to the forex market and futures contracts. Such wide exposure is a key reason why investors are looking for gold-backed assets. However, the safety net the metal provides against market volatilities also places a premium on gold-backed assets like PAXG.

The fine print

Per the report, each PAXG token will be backed by one fine troy ounce of LBMA-certified London Good Delivery gold. Token owners can then trade the tokenised assets across various blockchain networks.

Paxos CEO Chad Cascarilla also said that PAXG will be the cheapest way to own gold today. While there are other choices for investors to be exposed to the yellow metal like ETFs, the CEO said their tokenised gold would be cheaper and more redeemable. He said that PAXG will help users to take advantage of the
“liquidity, divisibility, and transferability of crypto, while owning gold.”

The crypto issuer claims to only profit from charging 1% max per ounce as a “tokenisation fee” when you buy tokens. While they already said that they would charge no custody fees, they will be charging users with a 0.02% transaction fee when you trade over the blockchain network.

The PAXG can now be traded across numerous blockchain trading platforms outside the US. It’s expected to take off in countries with softer regulations and frictionless crypto transactions like Portugal. An FX Street report on the regulations in Portugal highlights that the country’s Tax and Customs Authority announced recently that crypto trading and payments will remain tax free.

Frictionless?

While early adopters are always favoured in the crypto markets, some remain sceptical. Two-thirds of failed stablecoins announced since 2017 are gold-backed cryptocurrencies, according to The Next Web.

PAXG has also partnered with giant audit firm Withum to further attest to its commitment to follow regulation and established standards. In addition, global crypto lending provider Nexo announced that it will accept PAXG as a collateral option—further lending credence to the token.

It looks like PAXG is here to stay.

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