Paxos Standard (PAX): The Other Regulated Dollar-Backed Stablecoin You Should Know About

On Monday (10 September 2018), New York-based blockchain startup Paxos announced the launch of Paxos Standard (PAX), a fully USD-collateralized stablecoin, issued by the Paxos Trust Company, and approved and regulated by the New York State Department of Financial Services (NYDFS). 

Although two regulated dollar-backed stablecoins, Gemini Dollar (GUSD) and Paxos Standard (PAX), got announced yesterday, because the former was launched by the Winklevoss Twins' crypto exchange Gemini, it received a lot more attention by the media. However, the latter is just as interesting.

Paxos, which describes itself as "the first regulated Trust company with blockchain expertise", and it is "building products to simplify settlement and eliminate risk." Although it was founded in 2012 as Bitcoin exchange itBit, the company later rebranded to Paxos, and pivoted into a business focused on building a blockchain-powered modern settlement platform (but it still operates the custodian and crypto exchange itBit).

Paxos' press release says that "as a Trust company, Paxos is a fiduciary and qualified custodian of customer funds, and can therefore offer greater protections for customer assets than any other existing stablecoin."

Here are some important facts you should know about the Paxos Standard:

  • It is built on the Ethereum blockchain (implemented as an ERC-20 Ethereum token).
  • "Verified Paxos customers can purchase and redeem tokens directly through Paxos.com on a 1:1 basis with USD."
  • "When Paxos Standard tokens are in circulation, the corresponding dollars are held in reserve. Upon redemption for dollars, Paxos Standard tokens are immediately destroyed. Tokens are only in circulation when the corresponding dollars are in custody."
  • "Investors who trade digital assets through the itBit exchange or OTC desk have the option to withdraw digital assets to Paxos Standard instantaneously."
  • "Paxos Standard is available to be listed on other venues and will trade under the ticker symbol PAX."
  • "Paxos Standard has been designed as an Ethereum token written according to the ERC-20 protocol, so that anyone with an Ethereum wallet will be able to send and receive Paxos Standard tokens."
  • "The smart contract has been audited by smart contract auditor Nomic Labs and account balances will be audited by top U.S. auditors."

In his post on the Paxos blog, Chad Cascarilla, co-founder and CEO of Paxos, had several interesting things to say about the PAX token:

  • "... every Paxos Standard token is fully backed by dollars held at U.S.-domiciled FDIC-insured banks." (However, Paxos does not name these banks.)
  • Two good reasons to use PAX: (1) Through itBit (and other exchanges where PAX will be available), traders can "move digital assets into PAX while hedging against volatility (cheaper and faster than cashing out into dollars and crossing the digital-to-fiat divide)"; and (2) Through trading desks, for settling "the cash side of any crypto trades instantaneously and 24/7."
  • Eventually, PAX "could be used to settle transactions with any assets, not just assets that are digitally native, but assets that are physical (commodities) or securities (stocks and bonds)..."

According to Reuters, in May, Paxos "raised $65 million from investors including venture capital firms RRE Ventures and Liberty City Ventures." This cash injection is being used to expand its operations.