What is: Paxos Standard Token (PAX)?
Stablecoins were the buzzword in the second half of 2018 and, due to the volatility of the crypto market, are an important but equally controversial instrument for trading. In order to meet the high demand, numerous new stablecoins were launched by various companies in the second half of 2018. One of these coins was the Paxos Standard Token, PAX for short, which is supposed to compete with the controversial but leading stablecoin Tether (USDT).
The announcement for the Paxos Standard Token was made on September 10, 2018 by the New York blockchain company Paxos. The token was published almost simultaneously with another stable coin, the Gemini Dollar (GUSD), and the stable coin of the Winklevoss twins received much more attention at that time. Nevertheless, PAX is currently ahead of GUSD in the ranking by market capital (as of January 10, 2019). While the Gemini Dollar has only 90 million US dollars market capital (rank 50), PAX has 132 million US dollars market capital (rank 36).
Paxos describes itself as “the world’s first regulated crypto-asset”, which is fully secured 1:1 by the US dollar. The token is issued by the Paxos Trust Company and has been approved and regulated by the New York State Department of Financial Services. As a trust company with legal trustee authority, Paxos Trust Company is thus in a position to offer regulated services in the area of cryptocurrencies and virtual goods.
The Paxos Standard Token is based on the Ethereum blockchain (ERC20 standard) and is designed to provide greater speed, mobility, flexibility and accessibility to assets within the global financial system. Since PAX is based on the ERC20 standard, Paxo’s standard tokens can be stored, sent and received with any Ethereum Wallet.
As with Tether, there is no upper limit to how many Paxos standard tokens can be created with PAX. Paxos standard tokens are created whenever dollars are deposited. However, they only exist if the deposited dollars are in safe custody. When PAX is redeemed for cash, the tokens are immediately destroyed.
How does Paxos Standard differ from other stablecoins?
As mentioned above, Paxos is a trust company and qualified custodian of client funds and can therefore provide greater protection for client funds as they are held in separate accounts with FDIC-insured US-based banks. Verified Paxos customers can buy and resell PAX tokens directly from Paxos.com at a 1:1 ratio with USD.
In addition, Paxos undergoes a monthly audit by the leading auditing firm Withum, which issues certificates (in accordance with the standards established by AICPA) on Paxos dollar deposit bank accounts to ensure the transparency of the token.
On the official website of Paxos the company writes about the topic:
While there are other stablecoins, none have been able to provide the functionality, sustainability and regulatory oversight a reliable stablecoin needs.
To prove this, Paxos lists a number of distinguishing features (which we have explained in part before) that Paxos should differentiate from the competition:
- Regulation: The Paxos Standard Token is approved and regulated by the New York State Department of Financial Services.
- Guaranteed cash payments: All cash deposits secured by Paxos Standard are held with US-based FDIC-insured banks.
- Checked: At the end of the month, a national high-ranking auditing company, Withum, carries out certification of Paxos Standard bank accounts.
- Security: Partner transaction monitoring provides an additional level of compliance oversight.
- Daily buying and selling windows: allow the free and frequent movement of funds.
- No fees: Since Paxos issues the Paxos standard tokens directly, no fees are charged.
Other things to know about Paxos Standard
A relatively unknown fact is that the company behind the PAX token, the Paxos Trust Company, was founded in 2012 and operated the cryptocurrency exchange itBit (which still exists).
Since the launch of Paxos, the token has found widespread use and has been listed by numerous major crypto currency exchanges, including Binance, OKEx, Gate.io, Bittrex, KuCoin and Huobi. These exchanges offer PAX as an alternative to the controversial tether.
The rapid institutional introduction of the token shows how strong the demand for a regulated stable coin is. Nevertheless, it remains to be seen how PAX can assert itself against the other Stablecoin competitors. With Tether (USDT), USD Coin (USDC) and TrueUSD (TUSD), three competitors currently (as of January 10, 2019) have a larger market capital. In addition, the Gemini Dollar (GUSD) could also have a say in the race for (new) market leadership among the Stablecoins.
Since the Paxos default token is still very new, it is difficult to say how successful PAX will be over time. This may also depend to a large extent on which Stablecoin institutional investors will trust. It remains to be seen how PAX can exploit its true strength, full regulation and support from traditional financial institutions.