What Is PAX Gold (PAXG)?

Introduction

While modern investment options such as NFTs and crypto have gained popularity in recent years, physical commodities are still all the rage, with demand for gold reaching over 4,000 metric tons in 2021. Globally, the crypto market capitalization surpassed the $2 trillion mark last year as well. Many investors now find themselves face-to-face with the question: Which option to choose — crypto or gold?

PAX Gold has found a way to provide a hybrid investment option of cryptocurrency linked directly to physical gold assets, hence appealing even to investors who are used to traditional options. This article will discuss PAX Gold (PAXG) and examine its viability as an investment.

What Is PAX Gold (PAXG)?

PAX Gold (PAXG) is an asset-backed token issued by Paxos. One PAXG token represents one fine troy ounce of a London Good Delivery gold bar stored in Brink's professional vault facilities.

Users receive PAXG tokens representing legal ownership rights to a part of the gold held by the Paxos Trust Company. Since the PAXG token represents real, physical gold, its value is tied directly to the real-time market value of gold.

The PAXG token gives its owners the benefit of real physical ownership of gold bars, with the mobility and speed of a digital asset. PAXG token holders can have fractional ownership of physical bars and convert their tokens to unallocated gold, allocated gold or fiat currency (and vice versa) on the Paxos platform. This conversion process is quick and efficient, reducing vulnerability to settlement risk.

A PAXG token holder can look up the serial number, value and physical characteristics of their vaulted gold at any time by simply entering their Ethereum wallet address into the PAXG lookup tool.

How PAX Gold Works

PAX Gold runs on the Ethereum blockchain. Its PAXG token follows the standard ERC20 protocol, and all transactions function according to the smart contract rules set by the Ethereum network.

Every PAXG token represents one fine troy ounce of a gold bar stored in Brink's vaults. For smaller amounts of gold, physical retailers can help investors redeem their tokens. PAXG uses the same consensus protocol and blockchain features as Ethereum, including access to smart contracts.

Paxos checks and surveys each PAXG transaction via third–party analytical tools to investigate potential cases of fraud and money laundering. It also conducts regular smart contract audits, by which developers analyze code to identify bugs and vulnerabilities.

Paxos charges a small fee (around 0.02% of the amount of PAXG sent on the blockchain) for the creation and destruction of PAXG tokens. Users also pay on-chain fees for moving their tokens on Ethereum.

What Is Ethereum?

Ethereum is a blockchain platform technology that hosts applications, digital money and global payments. The Ethereum community has created a booming digital economy, with bold ways for creators to earn online and more.

An Ethereum smart contract follows a standard protocol for defining custom tokens on the blockchain. The contract must specifically declare basic token characteristics (name, symbol, decimal precision), track the total number of tokens, monitor the token balance for each Ethereum address, and allow address owners to transfer parts of their balances to other addresses.

Since PAX Gold follows the standard ERC20 protocol, many Ethereum-supported exchanges and wallet applications already have built-in support for viewing and transferring PAX Gold.

Key Features of PAX Gold

Highly Accessible

PAXG, built as an ERC20 token on Ethereum, can be moved or traded 24/7 from anywhere in the world. The low investment minimums enable anyone to own a part of an LBMA-accredited gold bar under London Good Delivery protocols.

Trusted

Paxos is a custodian and trust company regulated by the New York state Department of Financial Services (NYDFS). The PAX Gold token is also fully backed by allocated gold held in the world's most secure vaults. Every month, a nationally ranking auditor ensures there is a matching supply of PAXG and underlying gold.

Redeemable

PAX Gold is the first and only gold token that can be redeemed for LBMA-accredited Good Delivery gold bullion bars. Smaller amounts can also be conveniently redeemed through a network of physical gold retailers. Paxos customers can always redeem PAXG for USD at current gold market prices. Institutional customers can also redeem their PAXG tokens for unallocated Loco London Gold.

Flexible

PAXG holders can easily redeem or convert PAXG to fiat, physical or unallocated gold through the Paxos platform. PAXG can be used wherever ERC20 tokens are supported. PAX Gold tokens can also be traded for other digital assets on popular cryptocurrency exchanges.

Low Fees

Paxos offers an extremely competitive fee structure (0.03–1% based on volume tiers) for the creation and redemption of PAXG tokens in the Paxos wallet. It also offers low on-chain Ethereum transaction fees (0.02%) and zero storage fees. As with other ERC20 tokens, nominal Ethereum gas fees are applicable for on-chain transactions.

PAXG Tokenomics

As of this writing, the price of one PAXG is over $1,900, with a 24-hour trading volume of nearly $12 million. Ranked #124 on CoinMarketCap, PAXG has a circulating supply of more than 300,000 PAXG and a market cap of approximately $611 million.

Source: CoinMarketCap

Pros

Trusted Issuer

The Paxos Trust Company has a track record for successfully developing and maintaining stablecoins like Paxos Standard (PAX) and the U.S. dollar-backed Huobi stablecoin (HUSD).

Fully Collateralized

The Paxos Trust Company ensures that the circulating supply of PAXG is backed at a 1:1 ratio by physical gold bars held in secure Brink's vaults.

Accessibility

The low minimum order requirement of PAXG allows individuals to gain fractional ownership of LBMA-accredited London Good Delivery gold bars at retail investor-friendly prices.

Interest Accounts

PAXG holders can earn interest through crypto asset interest accounts offered by Crypto.com and Nexo. Users can also access short– and medium–term loans secured against their PAXG tokens through Nexo's platform.

Fractional Ownership

For most investors, physical gold bars are not quite affordable. As an alternative, PAXG offers access to fractional gold ownership at a minimum purchase of 0.01 PAXG (currently equivalent to $19).

Legitimacy

PAXG's issuer, the Paxos Trust Company, is fully regulated and licensed by NYDFS. The company maintains regular, publicly-available audits, so customer balances are cumulatively pegged 1:1 by the circulating supply of PAXG tokens.

Cons

KYC Requirements

PAXG tokens can only be purchased directly by verified users. Those who value their privacy might find PAXG's KYC requirements to be a tad invasive.

Asset Protection

In compliance with regulatory responsibilities, the issuer should adhere to legal requirements when asked to freeze, unfreeze or wipe a user's account. However, since PAX Gold is fully decentralized, there is no real way to enforce legal requirements on its transactions.

Who Is PAX Gold For?

PAX Gold is a valuable asset for investors and active traders (institutional or retail), as well as market participants both outside and inside the crypto asset ecosystem.

Bitcoin enthusiasts are also attracted to PAX Gold investments for many of their shared properties. Both Bitcoin and PAX Gold are decentralized "outside" assets that are no one else's liability, and are not tied to any particular government. Both assets are also scarce and transcend universally recognized borders. Therefore, many investors who hold and trade Bitcoin are also likely to be interested in holding and trading gold, which is where PAX Gold comes in.

PAX Gold's similarities to Bitcoin also ensure an easy introduction to new asset classes within a familiar ecosystem. PAX Gold is listed globally on crypto asset exchanges, and trades directly against Bitcoin and other crypto assets.

PAX Gold is an attractive option for many people worldwide who are interested in physical gold investment, as it’s allocated to high-quality gold, doesn’t require any storage fees and is highly accessible. In addition, people who already hold physical gold may be interested in moving their holdings to PAX Gold.

Is PAX Gold (PAXG) a Good Investment? 

Even though the price of gold may be volatile in the short term, it has historically maintained its value over the long term. For this reason, many investors use gold as a hedge against inflation.

The price of gold often increases in response to events that cause a decline in the value of traditional paper investments, such as bonds and stocks. Therefore, it’s important to consider a gold investment as a major part of a diversified investment portfolio. This strategy is effective in offsetting losses from more volatile assets during a downturn in the market.

PAXG offers investors the same value proposition of physical gold, in addition to the liquidity, security and divisibility of digital assets powered by blockchain technology.

Buying PAXG

Following are some ways in which users can purchase PAXG.

Direct Purchase

PAXG can be bought directly using USD or unallocated gold from the Paxos user interface.

Spot Price Purchase

On the main dashboard of the Paxos account page, click on the Buy button next to PAX Gold, or go to the PAX Gold tab on the top navigation bar. From there, you can convert USD into PAX Gold. PAXG tokens bought through Paxos' gold retailer are subject to creation fees that are clearly indicated in the Quote Preview section.

Unallocated Gold

If you have a Loco London unallocated gold account, you can transfer your holdings to Paxos. Paxos will convert the unallocated gold into physical allocated gold bars that are tokenized as PAXG. The resultant PAXG will then be credited to your Paxos account the next day. Any unallocated gold balance left in your account after the daily cut-off time (4:30 PM in the U.K.) will be converted to PAXG.

Bybit

You can buy PAXG on Bybit by first acquiring USDT and then placing a limit order to obtain PAX Gold tokens. Enter the targeted order price in USDT and select the amount of PAXG you want to acquire. If the PAXG price reaches the amount you’ve specified, your order will execute, and the tokens will be reflected in your account.

Source: Bybit

Other Exchanges

You can also purchase PAXG tokens from popular cryptocurrency exchanges using USD, EUR, BTC or ETH.

Closing Thoughts

PAX Gold’s unique value proposition ensures that both traditional and modern investors can keep up with today’s trends without compromising on their personal goals and preferences. With real gold assets represented by crypto tokens, you can have physical and crypto assets in a single investment — the best of both worlds.