PAX Gold (PAXG): A Comprehensive Guide to How it Works

By Hans Be
10 Min Read

In the innovative intersection of traditional assets and digital technology, PAX Gold (PAXG) emerges as yet another financial instrument that could disrupt conventional thinking and investing. As it embodies the timeless value of gold with the benefits of blockchain technology. In this article, we’ll delve into the mines and see if digital gold has its 2.0 version.

PAX Gold (PAXG) is a tokenized form of gold that is 100% backed by physical gold reserves stored in secure vaults. Each PAXG token represents ownership of 1 troy ounce of gold, providing a way for individuals to gain exposure to gold in a digital format with lower fees and barriers than traditional options as users can transfer tokens between wallets, use them as collateral, or convert back to fiat/coins while the value remains pegged to the real-time gold price. 

What is PAX Gold (PAXG)?

PAX Gold (PAXG) is a tokenized form of gold that combines the stability and security of both gold and cryptocurrencies. The digital token was launched by Paxos Trust Company, a firm based in New York that has it backed by actual gold reserves. The same company that issued Binance USD – BUSD.

Investigate the transactional advantages of stablecoins over traditional banking by reading about USDT, USDC, and BUSD on DroomDroom.

PAXG is an ERC-20 stablecoin on the Ethereum blockchain, and each token is pegged to the price of one troy ounce of a 400-ounce. This means the value of Pax Gold directly correlates with the real-time market price of gold. A way to invest in Gold using cryptocurrency. A real-world asset that is tokenized. In the future PAXG will not be solely limited to Ethereum mainnet; as it possesses the versatility to be deployed on alternate blockchains.

Dive into the mechanics behind stable digital currencies with “How Stablecoins Maintain Value”.

The Company Behind Pax Gold?

This new form of tokenized Gold is launched and backed by Paxos Trust Company, a financial institution and technology firm located in New York City. The company was founded by Charles Cascarilla and Richard Teo, former analysts at Goldman Sachs and Cedar Hill Capital Partners. Both have experience in traditional and blockchain-based venture capital projects.

Needless to say, a company that issues tokens in the jurisdiction of the United States needs to comply with regulators. So the Paxos Trust is being closely watched by the New York State Department of Financial Services which oversees and approves the issuance PAXG. 

On top of that, there are third-party auditing companies that conduct monthly audits to ensure that Paxos’ gold reserves match the supply of PAXG tokens.

How Does Pax Gold (PAXG) Work?

Pax Gold is an ERC-20 token on the Ethereum blockchain and can be transferred between Ethereum-based wallets, also on exchanges both centralized and decentralized. Some DeFi applications allow it to be used as collateral and to borrow against your digitized gold. 

If you own PAX Gold – PAXG you have exposure to gold in a certain way. You will have fewer costs compared to actually owning gold bars. This is because the transaction fee will be 0.02% plus the amount of ETH that is charged as gas fees. Please note that in times of high volatility or speculative frenzy craze on altcoins, these fees will go through the roof. 

Digital goldbugs can use the PAX lookup tool to determine the serial number, value, and other details of their physical gold. This can be done by inputting their Ethereum wallet address in the lookup tool. Also if users want to cash out they can exchange their PAXG holdings for fiat money, or other cryptocurrencies. 

So in a nutshell, PAX Gold allows investors to own portions of actual gold bars without high fees or storage or transportation costs and thus lowers the barrier to gold investing.

What Sets Pax Gold Apart from Other Cryptocurrencies?

In an ever-expanding landscape of ERC-20 tokens, Pax Gold distinguishes itself by its tangible backing, the coupling of a real-world asset. More importantly the real and physical gold, not the digital gold (bitcoin). The oldest form of money and most trusted by many around the world as the a store of value. 

For an in-depth look at how blockchain can fractionalize and trade real-world commodities, read “Tokenizing Tangible Wealth: A Blockchain Breakthrough”.

Pax Gold

The primary mission of Pax Gold is to democratize these ‘real money’ gold investments. In the official whitepaper, they state that “over USD 3.5 trillion of the total gold available today is used solely for investment purposes,” but a substantial portion remains out of reach for small-scale investors. If this is true then the solution is to find a way for everyone to invest in gold, as small as you want.

By essentially bridging this gap and underpinning each PAXG token by a fraction of a gold bar Paxos presents a new way for investing, and perhaps kickstarting a new way of using gold in a digitized form. Check out the fees between all gold investments below in a handy overview.

Pax gold peculiarities

How Many Pax Gold Coins Are Currently in Circulation?

The number of PAXG tokens in circulation is not static, it is constantly fluctuating because it continuously shifts as new investors buy into the PAX Gold scene, as more and more people join this new form of investing, it will reinforce the gold backing of the reserves by Paxos and its protocol. With a one-to-one correlation to the gold holdings that will support it. 

What’s The Difference Between PAXG and Gold ETFs?

Unlike a gold ETF that mimics the price of gold, a PAXG token is directly linked to a 1 troy ounce of gold stored in a London vault. PAXG tokens represent ‘actual’ ownership while gold ETFs only give investors access to the price of gold. 

Regulation is another very important topic. Gold ETFs are backed by companies that must follow strict rules by the regulators. If we look at Paxos it operates dependably and transparently under the legal jurisdiction of the New York Department of Financial Services (NYDFS) and thus under the all-seeing eye of the United States government.

Also, the speed of exchange is different and much faster to enter or exit, as PAXG does not require days to settle like trading actual gold bars might. Since PAXG is an ERC-20 token on Ethereum, it can be transferred and settled almost instantly. This is a big advantage in comparison to gold ETFs.

But remember! Holding the token won’t, in theory, provide you any more ownership than an IOU from Paxos to anyone holding their token. We know what happened with the endorsed and ‘regulated’ cryptocurrency exchange FTX, right? 

Dive into DroomDroom’s comprehensive guide to understand how Bitcoin ETFs are accelerating institutional crypto adoption.

What Is The Future of Asset-Backed Tokens?

PAX Gold is one of the first massive popular asset-backed tokens that is revolutionizing markets by providing real world assets on the blockchain. This is a global game where users from all walks of life can buy into gold using blockchain technology. If the liquidity rises this could tap in a trillion-dollar market. The future of asset tokenization will be filled with exciting possibilities and will merge ownership of physical things toegether with digital ownership the blockchain.

Closing Thoughts

Asset-backed digital currencies like PAX Gold represent an exciting development as we see that the blockchain technology, which was first introduced by bitcoin a.k.a. digital gold, will reverse the roles, and pave the way for the entrance of real physical gold on the blockchain. Although this will never replace digital gold, the form of tokenizing value will change the way how we invest in gold. If assets pegged to gold increase in popularity, we can see that a liquidity expansion similar as the multi-trillion-dollar commodity markets we know in traditional finance.