What Is PAX Gold (PAXG)?

TL;DR

PAX Gold (PAXG) is an ERC-20 stablecoin backed by physical gold reserves in secured London vaults. PAXG lowers the entry barrier to gold investment by allowing users to own fractions of physical gold without the burden of storage and transportation fees. Users can trade PAXG as a digital asset on centralized crypto exchanges and DEXs. 

Introduction

Gold has maintained its status as a valuable commodity for thousands of years. It’s used to make jewelry, store value, and even hedge against inflation. However, buying physical gold can be expensive and cumbersome for the average retail investor. For one, storing gold requires a safe location, such as a bank vault. Moreover, transporting gold from one location to another can be a complex task due to its heavy weight.

Paxos Trust Company aims to address these challenges with PAX Gold (PAXG) — tokenized gold that lives on the blockchain. 

What is PAX Gold (PAXG)?

PAX Gold (PAXG) is an ERC-20 stablecoin backed by physical gold reserves, held in custody by the Paxos Trust Company. Each PAX Gold token equals one troy ounce of a 400-ounce London Good Delivery gold bar housed in secured gold vaults, such as Brink’s. Since PAXG represents physical gold, its value is tied directly to the real-time market value of that physical gold.

PAXG is regulated and approved by the New York State Department of Financial Services. To ensure that Paxos maintains its reserves, a third-party auditing firm performs monthly checks to verify that Paxos’ gold reserve matches the supply of PAXG tokens, and these attestation reports are released on Paxos’ official website. PAXG’s developers conduct regular smart contract audits to identify potential bugs and vulnerabilities.

In addition, all Paxos customers’ assets, including PAXG, are protected from bankruptcy and held separately from company assets.

How does PAXG work?

PAX Gold runs on the Ethereum blockchain. As an ERC-20 token, PAXG is compatible with Ethereum-based wallets, can be integrated with DeFi DApps and DEXs on Ethereum, and can be traded on cryptocurrency exchanges like Binance. 

Compared to owning physical gold bars, owning PAXG doesn’t require any vault storage or custody fees. Each PAXG transaction only incurs a small transaction fee of 0.02% and some ETH as gas fees. It lowers the entry barrier to gold investment by letting users own fractions of physical gold bars without the burden of fees, storage, or transportation costs. 

PAXG tokens are allocated serial numbers that match those of individual gold bars. Holders can find their physical gold’s serial number, value, and other characteristics by entering their Ethereum wallet address on the PAXG lookup tool. They can also redeem their PAXG anytime for fiat currency, another crypto asset, or allocated and unallocated gold bullion bars from gold retailers at the current market price of gold.

What’s the difference between PAXG and gold ETFs?

Gold exchange-traded funds (ETFs) track the value of the underlying gold. They only give investors exposure to the price of gold, but not the ownership of it. An investor in possession of a gold ETF shares is a party in a contract that represents the entitlement to a specific percentage of the pooled gold. Gold ETFs cannot substitute for full ownership of gold. For example, in times of crisis and volatility, the contract value could be lower than the underlying value of the gold it represents by the time of settlement.

PAXG, in contrast, is a digital representation of gold. Each PAXG token represents one fine troy ounce of gold housed in secured London vaults that can be identified by serial numbers. Trading PAXG doesn’t take days to settle as could be the case when trading physical gold bars. As PAXG exists on Ethereum as a ERC-20 token, PAXG can be traded with a near-instant settlement.

Closing thoughts

While various crypto investment options have gained popularity in recent years, physical commodities are still common in traditional investors’ portfolios. PAXG is looking to offer a blockchain-powered alternative to this established market by utilizing the speed and liquidity of crypto assets.