Hi Carl, we are glad to have you here today! Could you introduce yourself and PAX Gold?
Sure. I am the PAX Gold Product Lead at Paxos, a blockchain infrastructure company whose mission is to modernize finance by mobilizing assets at the speed of the internet. We have a variety of business units focusing on applying blockchain technology to real-world problems, ranging form providing a Crypto brokerage product that are used by the likes of PayPal, to tokenzied precious metals (ie PAX Gold) as well as securities settlement.
We launched PAX Gold because we saw a fundamental challenge in the gold market. Users who were looking to own gold had to choose between a highly liquid gold product like ETFs, or ownership of the udnerlying gold (ie physical gold) which was more illiquid and was full of fees.
We believe PAX Gold will revolutionize how gold is traded and owned, and will both enable new user experiences (such as gold lending we see today) as well as reduce counterparty risk since users own the underlying gold. PAX Gold is both highly liquid and gives owners gold ownership to London Good Delivery Bars.
Q1. Do PAX Gold customers own the underlying physical gold too?
Correct. Ownership of PAX Gold can be thought of as a digital receipt that represents ownership of the underlying physical gold bars. Paxos is a regulated Trust Company by the NY DFS and all gold is held FBO token holders. In fact, token holders can look up their address which holds PAX Gold, and sees the section of which gold bar(s) they own.
We think this is a big improvement over ETFs today where it isn’t clear there is 100% backing and the ETF most of the time doesn’t provide users ownership of the underlying gold. And one more thing before we get too deep, just wanted to say that we have been following the COVID situation in India and we are hoping for a speedy recovery.
Q2. How does PAXG token compare to physical gold and Gold ETFs?
Physical Gold in essence gives users clear ownership over the gold, but it is an illiquid market and is usually full of fees. I am not as familiar with the Indian market, but in the US investors may collect gold coins. However, these usually have high markups and users need to pay for some sort of recurring ‘custody’ / ‘storage’ fee, or simply store them in their home or another safe place where it is susceptible to theft.
ETFs provide users exposure to gold, but not physical ownership of the underlying gold itself. In fact, if the ETF were to go bust or become insolvent, it’s unclear what rights the ETF holders have. PAX Gold is a digital token that represents one fine troy ounce of London Good Delivery Gold Bars. All gold is held bankruptcy remote in the most secure vaults.
PAX Gold solves the fundamental contradiction that exists today in the gold market – liquidity and ownership of physical gold. And btw, with PAX Gold does not have custody fees. So, for those looking to securely hold Gold, PAX Gold is a great choice.
Q3. Should I pay tax or service tax when I want to convert my PAXG token into physical gold?
Thanks! Yes, we have been very pleased with the organic growth of the product. We know that India has a deep history and affinity to gold and so we are very excited that this is the first exchange serving the Indian community listing PAX Gold. First of all, I need to specify that I am not familiar with the local tax codes in India and I highly suggest speaking with your tax advisor for specific questions.
I cannot provide tax or financial advice. PAX Gold is a digital representation of physical gold, and so procuring the physical may not incur a taxable event. However, again, I cannot speak to local tax regulations and recommend speaking with a tax advisor for that question.
Q4. Given the volatility of the crypto market, how does the PAXG token make gold more tradable in the long run?
PAX Gold can be swapped for unallocated gold or sold through the London Gold Market, the most liquid in the world. Because of this, PAX Gold is always pegged to the real price of gold (+/- slight adjustments). Therefore I believe PAX Gold is one of the safest digital tokens out there because it’s 100% backed by physical gold and we are one of the most regulated blockchain providers in the world.
Q5. How does PAX manage supply:demand for its tokens and the reserves of gold?
PAX Gold tokens are created and redeemed at will by users. So unlike other tokens that have a “max supply”, our theoretical supply is the entire gold market. We also don’t have a ‘burn’ rate or similar concept – as users buy tokens they are created, and when they are redeemed the tokens are burned, so it’s 100% a function of user demand.
Q6. As mentioned in the white paper of PAX Gold, PAXG tokens are created and destroyed by Paxos as needed, so how exactly is the circulation of this cryptocurrency decentralized?
Tokens are minted/burned as users buy/sell gold at a 1:1 ratio. Paxos has the PAXG mint/burn rights which are used to enable users to buy/sell gold. PAX Gold can be used on DeFi Apps like Uniswap and we expect additional listings in the future. We see a wide variety of users and institutions holding PAXG.
Q7. What about the fees that are charged by brinks to store the gold that is backed? How do the fees are levied? Will there be a premium compared to the actual market cost of a troy ounce of gold?
Paxos pays Brinks and other vault providers a storage fee for the gold bars. Instead of charging users annual custody, we cover costs through the create/redeem fee and through a very small ‘on-chain transaction fee’ of 2bps. There could be a slight premium to the spot price which accounts for the benefits of tokenization. But it is very slight (as our fees are not high) and overall PAX Gold tracks directly with unallocated spot gold price.
Q8. What is the strongest advantage that you think will make the Paxos team lead the market? What are the challenges you have and how does the team plan to overcome them?
We are the leading gold-backed token issuer which we interpret as a positive sign from the market that people love PAX Gold. Overall, Paxos differentiators are its regulatory oversight and our team (including Board/VCs). Some of the opportunities we have ahead are exploring how we can accelerate institutional adoption of PAX Gold, which helps further build efficiencies and overall migrate gold ownership/trading into a blockchain-based solution.
Another opportunity is meeting users where they are, and the launch of WazirX in India is a great example of how we can introduce digital gold to new user segments through partners. So, very exciting times ahead. Our Market Cap is now around $200M and we don’t expect it to slow down anytime soon.
Q9. What is the future course of action along with a roadmap to enhance the revenue of Paxos so that the holders will get benefited along?
The gold industry has not caught up with the digital revolution. We see benefits to the blockchain-based approach including faster/easier settlement, lower counterparty risk, and operational improvements, including cost. To transition the gold market we need to make sure PAX Gold is a viable and affordable solution. We think as the gold industry modernizes and users and institutions see how easy and secure holding gold can be, that could increase the overall value of gold.
Q10. Every project is now including NFTs in their platform, do you have any plan to introduce NFTs too?
NFTs are an exciting space that we are exploring, and our mission is to ensure institutions can best serve their customers using Paxos infrastructure. Our near-term focus has been enabling crypto buy/sell/hold for institutions but we are here to build the most compelling solutions for our customers.
Q11. Is PAX Gold audited?
Yes, both Paxos and the PAX Gold product are audited by NY DFS. Paxos also received conditional approval from the OCC to be a National Trust – we are very excited about that.
Q12. How do you see the future of PAXG in the Indian market? How are you trying to make it simple to undertake for the Indian customers?
This is our first major step and we are very excited about it, and there is a lot of room to expand from here. Areas that are required to make PAX Gold even more accessible are to make it available through India broker-dealers, retirement tax-advantaged programs, and making it easier to redeem for physical gold. If anyone has strong connections for these use cases please send them my way.
Q13. How safe is PAXG? And how it is different from digital gold which is already existing and why people should choose PAXG for it?
PAX Gold is the safest and most regulated digital gold token available today. What separates us from other gold tokens is our regulation and that we source liquidity through the largest spot gold market in the world.
Q14. Is PAXG mining eco-friendly? What’s the power consumption per PAXG?
PAX Gold is energy efficient. PAX Gold today exists on the Ethereum network which is moving to a PoS framework. As for minting/burning of digital tokens themselves, there is no algorithmic challenge that would artificially increase energy consumption.
Q15. PAX Gold coincides with an ongoing debate in the financial world of whether gold or Bitcoin. What you have to tell on this?
What is exciting about PAX Gold is that it is truly ‘digital gold’. I think a balanced portfolio can support multiple stores of value assets.
Q16. Tell us a little bit about security? Have you done an audit of the platform? Are the smart contracts error-free? What are the test results?
Yes our PAX Gold product has received multiple audits which can be found linked on our website. In addition, the gold supply is attested monthly by renowned legal firms and also posted on our website. Lastly, Paxos as a company is a trust and highly regulated and has top security practices.
Q17. Why Paxos Standard decided to create a cryptocurrency entirely backed by gold?
We think it’s important to enable retail and institutions to access digital gold for the many benefits it provides. I think there is an exciting opportunity for other gold<>crypto wrapped ETFs or tokens, but it’s best to prove out the base case of direct gold ownership first and I think we’ve succeeded there.
Q18. Do you have any plans to attract non-crypto investors to PAXG who are still not in the crypto world especially as a new project entering crypto?
Absolutely, in fact, many PAX Gold holders would describe themselves as non-crypto holders. Many of them are institutions or retail users that see the benefits of digital gold, such as 24/7 transfer and liquidity, lower cost, and access and ownership to institutional-grade bars.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.