As explained by Paxos Standard Token’s blog post, “BitPay merchants and businesses now have the option to receive settlements in PAX, the digital equivalent to the US dollar.” The partnership between Paxos and Bitpay aims to give business owners the “speed and accessibility of cryptocurrencies” - while also providing the “trust and stability” of the USD.
Notably, Paxos’ post mentions that the “new settlement option is particularly valuable for overseas businesses that have limited access to a currency as stable as the USD.” Moreover, the PAX stablecoin may be a safer alternative to other digital currencies as it is a regulated medium-of-exchange (MoE).
Regulated Stablecoins, Backed By USD Held In FDIC-Insured Bank
According to the stablecoin’s issuers, every PAX “in circulation is backed by a US dollar held in an FDIC-insured bank.” The FDIC, which stands for the Federal Deposit Insurance Corporation, is a US government-owned corporation that provides “deposit insurance to depositors” who hold funds in US-based “commercial banks and savings institutions.”
As CryptoGlobe reported, the PAX token was launched on September 10th, 2018 and it is the world’s first-ever regulated stablecoin (along with the Gemini Dollar (GUSD) which was launched on the same day).
The PAX token has been approved and is regulated by the New York State Department of Financial Services (NYDFS). As covered, the issuers of the PAX stablecoin must "implement, monitor and update effective risk-based controls and appropriate BSA/AML and OFAC controls."
These controls are put in place in order to prevent funds from being used to finance illicit activities such as money laundering, drug trafficking, or any other exploitative activity.
Issues With Giving Law Enforcement Too Much Control?
While these measures help enhance consumer protection, some users have complained about Paxos having the capability to freeze or seize user funds, if they are ordered to do so by law enforcement officials. Commenting on the issue, John Backus, an Ethereum (ETH) user, remarked: “Wow, wtf? The PAX stablecoin gives ‘admin write access’ to law enforcement. Basically, the government can FREEZE and BURN anyone's coins!”
I get we need compliant stablecoins, but giving the government direct control to the smart contract seems excessive.”
He then recommended what he described as “less extreme alternatives. These include following the “normal legal process” that involves the government requesting that the offender’s funds be frozen or seized.
After receiving the request from authorities, Paxos or any other stablecoin issuer can look into the matter and comply with law enforcement by freezing the funds. However, Paxos should be the one to actually “confirm burning", Backus suggested.