Paxos Trust Company launches PAX gold, a new asset backed stablecoin

Paxos Trust Company launched PAX Gold, the first crypto-asset redeemable for physical gold today.

PAX Gold is an asset-backed digital token, each representing one fine troy ounce of London Good Delivery gold stored in vaults in London. The customers own the underlying physical gold, (and it’s value is tied to that of the commodity) but the tokens offer the ease, speed and mobility of a digital asset.

“It’s as easy to trade as ETFs or bitcoin, is extremely mobile and divisible, and it also gives holders ownership to the highest quality gold in the world. It’s never been easier to own or trade gold and we are thrilled to give both institutions and individuals access to gold in a faster and cheaper way. By putting gold on a blockchain, we’re democratizing access to gold,” said Charles Cascarilla, CEO and co-founder of Paxos.

PAX is built as an Ethereum token, following the ERC-20 technical standard for “smart contract” protocol, which makes it easy to integrate with exchanges, wallets, lending platforms and other staples of the cryptocurrency trading infrastructure. And rather than pay the storage fees that come with gold bars, Paxos charges fees for on-chain transactions, and also at the point of token creation or destruction.

Benefits of PAX Gold include: 

  • Ability to own and redeem London Good Delivery gold bars;
  • Free gold storage in the most secure vaults in the world;
  • Easy access to the gold market with low minimum investment (0.01 PAXG, roughly $15 at today’s prices) and fractional bar ownership (divisible to 18 decimal places); and
  • A regulated product that ensures the quality, weight, and provenance of each ounce of gold backing PAX Gold tokens.

The new gold standard

The idea of an asset-backed digital currency actually predates cryptocurrency, and its story may have served as a cautionary tale  to the designers of Bitcoin about the dangers of centralization.

Long before bitcoin and blockchain came around, there was E-Gold.

Douglas Jackson, a former oncologist, was the mastermind behind the world’s first digital currency.

The ideological basis behind his digital currency sounds awfully familiar—he believed that gold and silver were better stores of wealth than paper money—and set out to find a digital hedge against the depredations of central banks.

“Many a paper currency has spun out of orbit in a calamitous trajectory There has never been an instance of gold or silver being discarded as worthless,” Jackson once wrote.

He was immediately beset with problems, including competition from other entrepreneurs, who created digital currencies like e-Bullion, GoldMoney and OSGold, and stole customers away. But Jackson scaled up, and immediately dealt with another type of cockroach common to cryptocurrency enthusiasts—scammers.

Phishers tricked users into divulging their passwords, and Jackson even solved that problem.

Last, and what ended up being the contributing factor to the digital currency’s downfall, was the participation of organized crime. He tried his best to provide all variety of technology fixes to curtail the participation of organized crime, but it was too little too late, according to the Feds.

“Douglas Jackson and his associates operated a sophisticated and widespread international money remitting business, unsupervised and unregulated by any entity in the world, which allowed for anonymous transfers of value at a click of a mouse. Not surprisingly, criminals of every stripe gravitated to E-Gold as a place to move their money with impunity. As alleged in the indictment, the defendants in this case knowingly allowed them to do so and profited from their crimes,” said U.S. Attorney Jeffrey A. Taylor for the District of Columbia.

Jackson and his colleagues did time for money laundering, conspiracy and operating an unlicensed money transmitting business.

“No matter how innocent a person is you can always find a law that government agents can use to convict him of something. And this is a perfect example of it. Any time anybody tries to produce money, the federal government is going to be on their tail,” said Richard Timberlake, former professor of economics from the University of Georgia.

This is definitely something that the producer (and holder) of any stablecoins should think about.

—Joseph Morton

Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

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