In recent years, non-fungible tokens (NFTs), cryptocurrencies and other modern investment options have become trendy. However, physical commodities such as gold are still in high demand. In 2021, the global market capitalization for cryptocurrency surpassed $2 trillion. Now, investors must ask themselves: which option should I choose — crypto or gold?
Gold is a commodity that dates back thousands of years as a store of value and as a means of exchange and is still successful today. Even with the invention of decentralized digital cryptocurrency, gold has remained just as prominent. Although, for most individual investors, owning gold can be difficult and out of reach. There is one crypto company, PAX Gold (PAXG), whose goal is to make gold ownership more democratic and available to everyday investors by allowing them to trade it like any other cryptocurrency.
PAX Gold has discovered a method to combine cryptocurrency with physical gold assets, making it attractive to investors accustomed to conventional alternatives. This article will discuss PAX Gold (PAXG) and analyze how the cryptocurrency works.
What Is PAX Gold?
Paxos Gold is a cryptocurrency that is backed by real gold reserves held by Paxos, a for-profit company in New York. Each PAXG token is linked to a 1:1 ratio to one troy ounce (t oz) of a 400-ounce London Good Delivery gold bar stored at Brinks Security vaults in London. The Paxos-backed cryptocurrency, PAXG, is backed by the London Bullion Market Association (LBMA) certified gold bars and may be redeemed for actual bullion.
Related: What is a gold-backed token and how does it work?
PAX Gold investors are spared the trouble of storing and securing physical gold, as well as transporting it. Also, shares can be bought fractionally, which makes it more accessible for retail investors who would otherwise be hindered by the high cost of gold. PAX Gold boasts a combination of qualities from both physical gold ownership and cryptocurrency that provide solutions to many modern-day challenges in the gold market such as high costs, storage concerns and the lack of liquidity.
Who Is Behind PAX Gold?
The Paxos Trust Company, a financial institution and tech company based in New York City that specializes in blockchain technology, created PAX Gold. Charles Cascarilla and Richard Teo, both former analysts at different firms (Cascarilla at Goldman Sachs and Teo at Cedar Hill Capital Partners), founded Paxos in 2012.
PAX Gold is not the only crypto project that Paxos has undertaken. In addition to PAX Gold, they have also created PAX Dollar (USDP), a digital United States dollar and stablecoin. They have received strong institutional support and have raised over $500 million in total funding from investors like OakHC/FT, Mithril Partners and PayPal Ventures.
How does PAXG work?
The PAX Gold token is built on the Ethereum blockchain, which gives it portability among wallets, exchanges, decentralized finance (DeFi) platforms, and other apps that use Ethereum. PAX Gold allows users to trade, stake or redeem their tokens for high-quality gold bars. These gold bars are accredited by the London Bullion Market Association and stored in secure vaults around the world. Even with these top-notch security measures and high-quality gold, PAX Gold doesn’t charge any custodial or storage fees — only a 0.02% transaction fee.
Is Pax Gold safe? PAX Gold is not only accredited with a gold standard, but it also functions reliably and transparently. Both PAX Gold and its holding company, Paxos Trust, are under the legal jurisdiction of the New York Department of Financial Services (NYDFS). Furthermore, PAX Gold protects the consumer and the company’s assets independently, ensuring that the consumer is secure in the event of bankruptcy.
PAXG undergoes monthly audits from a third-party auditing firm to ensure that its gold reserves match the supply of PAXG tokens. The reports from these attestations are released on Paxos’ official website. In addition, PAXG’s developers run regular smart contract audits to search for any potential bugs or vulnerabilities in the network.
Is Pax Gold real gold?
As mentioned earlier, Pax gold is tokenized gold that operates on a blockchain network. Tokenization is the digital transformation of both physical and intangible assets into cryptocurrency. The PAXG token specifically represents physical gold from the Paxos trust company. Gold is a good store of value because it keeps its value over time. As such, it is often used as a hedge against inflation. When the USD loses value, gold becomes more expensive in USD and vice versa. This makes gold a popular choice for investors looking to protect their wealth from inflation.
The PAXG tokens have serial numbers that match those of individual gold bars. The serial number, value and other characteristics of a holder’s physical gold may be discovered by inputting an individual’s Ethereum wallet address on the PAXG lookup tool. They also have the option to convert their PAXG into fiat money, another cryptocurrency or allocated and unallocated gold bullion bars at the current market price of gold.
What’s the difference between PAXG and gold ETFs?
The main difference between a gold ETF and Pax Gold is that an ETF purchases a contract that mimics the price of gold, but the user does not own the underlying asset. Each PAXG token is directly linked to a real gold bar kept in a London vault, with each PAXG token being equivalent to one.
Gold exchange-traded funds (ETFs) track the value of the underlying commodity. They just give investors access to the price of gold, but not ownership. An investor who owns a gold ETF is a party to an agreement that gives him or her a specific fraction of the pooled gold. Gold ETFs can’t compare to full ownership of the metal. For example, by the time settlement occurs, the contract value may be lower than what you would get if you simply owned the gold outright.
In contrast, a PAXG is a digital representation of physical gold. Each PAXG token represents one troy ounce of gold in London vaults that can be identified by sequential numbers. Trading PAXG does not take days to settle as physical gold bar trading might do because it is handled on Ethereum as an ERC-20 token.
PAX Gold is the perfect investment for both traditional and modern investors who want to stay on trend without compromising their personal goals. With actual gold assets reflected in crypto tokens, you can invest in both physical and digital resources with a single investment, taking advantage of the best aspects of each.
How does PAX gold make money?
PAX Gold will earn revenue in two ways: a small premium on the gold and a tokenization fee at the time of initial purchase. The percentage for the tokenization fee depends on the amount purchased initially; it is 1% for purchases of one ounce or less but significantly lower for larger purchases. Paxos will not charge custody fees, but it will charge a fee of 0.02% whenever a customer wants to buy or sell a token on a blockchain network.
Related: What is tokenized real estate? A beginner’s guide to digital real estate ownership
Can you stake PAXG? You can earn interest on your PAXG by lending it to a custodian, but rates will differ depending on the lender. Staking your PAXG also allows you to earn interest, but you must lock up your tokens for a specific period of time. How to buy PAXG? The token is available for purchase on several exchanges, including Binance, Kraken, KuCoin and Coinbase. Here are the steps to buy PAXG tokens on the Coinbase crypto exchange:
Download a self-custody wallet that supports PAXG like the Coinbase wallet.
Securely store your recovery phrase.
Understand and prepare for Ethereum network fees.
Buy and transfer Ether (ETH) to your self-custody wallet.
In the trade section, use the ETH to purchase PAX Gold.
The future of asset-backed tokens
Asset-backed tokens are digital representations of physical assets that can be redeemed for the underlying asset. That asset could be gold, oil, real estate, equity, soybeans or just about any other commodity.
Asset-backed tokens are cracking open markets that were once inaccessible and costly by making transactions that don’t need a central figure. By doing this, we’re ensuring both security and transparency in business relationships. This is changing the way we do business for the future and how we think about ownership and wealth creation.
Asset-backed tokens may also help to address issues caused by inflated or depreciated currencies, as well as the unpredictable stock market. Individuals have a viable new financial choice that combines digital liquidity with real asset values when needed, thanks to asset-backed tokens’ potential. We’ve already seen how asset-backed tokens are being used in numerous applications.
The future of asset tokenization is only as limited as the imagination. With new use cases being discovered every day, it’s exciting to think about all the possibilities for how asset-backed tokens can help people and businesses around the globe.
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