Gold has been a popular commodity as a store of value since the dawn of time, but it has several issues.
Even though it’s beautiful when used for jewelry, and super shiny even as a rock, it isn’t easy to move or store in any quantity, and it’s very difficult to divide into smaller units. In fact, most of the gold trading being done on exchanges is trading in derivatives without any actual physical gold ever changing hands.
With the development of blockchain technology some forward thinking folks decided that making gold a digital asset would be a good idea. Paxos was one of the companies which digitized gold on the blockchain. Let’s see how they did it and how their Paxos Gold (PAXG) token functions as a blockchain asset.
Who are Paxos?
Paxos was founded in 2012 as a privately held company that’s working on rebuilding the infrastructure of finance in a decentralized manner. As their website proclaims, they want to “make it possible to move any assets anywhere, instantly – and therefore democratize access to a new, global, frictionless economy.” And they’re accomplishing this by digitizing assets, including gold.
After launching the itBit cryptocurrency exchange in Singapore soon after the creation of the company they were awarded a limited purpose trust charter by the New York State Department of Financial Services, making them the first company approved and regulated to offer crypto products and services. Soon after that they became regulated qualified custodians, enabling them to branch out from stablecoins to digital gold.
What is Paxos Gold (PAXG)?
Paxos Gold was created as an ERC-20 token on the Ethereum blockchain and with it Paxos is looking to solve the fundamental problems with physical gold and the traditional gold markets. Namely, that in the traditional market, investors have no access to a high-quality gold product that easy to purchase, transport, store, and trade.
In the traditional markets investors can certainly buy as much physical or allocated gold as they like, but along with the purchase comes the high risk of physical gold. This risk is due to the size and weight or larger gold bars, the expense of storing it safely, the inability to divide it into smaller units easily, and the fact that because it can be difficult to transport it can also be difficult to sell, trade, or use.
How does Paxos Gold work?
Paxos is using blockchain technology to improve the distribution, storage, and ownership of gold. Because PAXG is a blockchain asset it is decentralized, immutable, and highly resistant to malicious attacks or theft. Paxos Gold is as good as gold, but without the problems of storage, transportation, and the risk of theft.
The PAXG token is an ERC-20 token at the time of writing, but the whitepaper does not specify that this platform is necessary, and Paxos could reissue PAXG on a different platform in the future.
The PAX Gold asset is fully regulated by the New York State Department of Financial Services (NYSDFS). There is no unallocated gold included in the PAXG backing, instead it is fully-collateralized by physical gold at the ratio of one troy ounce (roughly 31 grams) of a gold bar complying with the London Good Delivery standard, to one PAXG token.
Why use Paxos Gold?
Paxos is best known for its stablecoin called Paxos Standard, which is a fully-collateralized U.S. dollar stablecoin. That was launched in September 2018. Just one year later in September 2019 Paxos launched Paxos Gold (PAXG) a fully-collateralized digital asset that represents one fine troy ounce of a London Good Delivery gold bar.
These bars are securely stored in professional vaults, and anyone who owns PAXG has rights to a corresponding amount of the physical gold. Because PAXG is a direct representation of physical gold its value is also tied to the actual price of gold in real-time on the spot markets.
Where to buy Paxos Gold
When Paxos Gold was first launched the only place to purchase PAXG tokens was through the portal on the Paxos website by creating an account, or through the itBit exchange that is owned by Paxos. Since that time Paxos Gold has grown tremendously, and it is now the 122nd largest altcoin by market cap, with a market cap of over $76 million and daily trading volumes well in excess of $1 million.
VERDICT
Digital gold is an idea that makes a lot of sense. It avoids the problems that have been associated with purchasing, holding, and trading physical gold. It even creates the opportunity to generate interest on what has always been a yield-less asset. With Paxos Gold the team at Paxos have created a digital asset for the future.
So far only $75 million in gold has been digitized by Paxos, but gold is said to be a $7.3 trillion market. That leaves massive room for growth in the space.
The real hurdle at this point is blockchain adoption. Once people become more comfortable using blockchain assets in general it will be a logical leap for them to use digital gold rather than physical gold. After all, digital gold is far more portable, liquid, convenient, and it can even be used to generate interest payments.
The integration with Paypal should give Paxos a boost, and could significantly advance the movement towards digital assets being used by everyday people for all sorts of purposes – including investing in gold.
