Gold has been a store of value and a medium of exchange for thousands of years. While buying, selling, and transporting physical metal is cumbersome, there is an easy way to benefit from its value. Enter Pax Gold (PAXG), a stablecoin with exposure to the gold market. Discover the key features and applications of this ERC-20 token in our PAXG crypto review.
What is PAXG (Pax Gold)?
Not all stablecoins are pegged to fiat currencies. Pax Gold, an ERC-20 token launched by Paxos, is backed by physical gold. Holders can trade and transfer PAXG anywhere, 24/7, benefiting from the utilities of the Ethereum blockchain.
Paxos Trust Company, established by Charles Cascarilla and Rich Teo in 2012, was initially called itBit. This New York-based financial institution focuses on the creation of crypto exchange infrastructure. It launched its first stablecoin — the USD-pegged Paxos Standard (PAX) — in 2018. Pax Gold (PAXG) was unveiled a year later.
How does PAXG work?
Anyone who holds PAXG also owns the underlying commodity — one fine troy ounce of a 400 oz. London Good Delivery gold bar per token. The reserves are kept in Brink’s vaults, described as "the most secure, leading vaults in the world" and approved by the London Bullion Market Association (LBMA).
PAXG is the only cryptocurrency redeemable for LBMA-accredited Good Delivery gold bullion bars. The custodian, Paxos Trust Company, is regulated by the New York State Department of Financial Services (NYDFS). Independent monthly audits ensure that the token supply matches the gold reserves.
Tokenized physical gold relies on the metal's real-time market value. Each PAXG token has a serial number matching the identifier on the underlying gold bar. Any holder can enter their Ethereum wallet address into the PAXG lookup tool to see the number, value, and other characteristics of the physical commodity.
Unlike Bitcoin, PAXG has an unlimited supply — Paxos issues new tokens based on market demand. When a token is redeemed, it is destroyed — burned — immediately. The current circulating supply is 303,033.53 PAXG.
Holders can redeem their PAXG around the clock, and settlement is nearly instant. There are several options:
- London Good Delivery gold bullion bars (allocated gold)
- unallocated Loco London Gold
- USD at the current gold market price (spot price sale)
- another crypto asset via PAXG exchanges
Only allocated gold is fully owned by the buyer. The unallocated form, which is more popular with investors, does not provide physical possession as the bars remain in the bank's reserves. Redeeming PAXG for physical gold requires at least 430 PAXG plus fees, as the bars weigh 370-430 oz.
Custody and vault storage are free, but users incur transaction costs:
- 0.03-1% for token creation and destruction (depends on volume)
- 0.02% and some ETH for moving PAXG (two types of on-chain fees)
Is PAXG safe?
Pax Gold functions in a transparent system protected from fraud, hacks, and reserve shortages. All transactions follow the smart contract rules of the Ethereum network.
- Separate storage of the customers' funds guarantees protection in the event of bankruptcy.
- Pax Gold and Paxos Trust are under the legal jurisdiction of the NYDFS.
- Monthly audits by a third-party firm ensure that the gold reserves match the PAXG supply.
- Developers conduct regular smart contract audits to detect and fix bugs and vulnerabilities.
- Paxos uses third-party analytical tools to monitor every PAXG transaction and prevent fraud and money laundering.
Key advantages of PAXG
PAXG makes gold more tradeable — transactions take seconds while trading physical bars takes days. Furthermore, PAXG is divisible, which lowers the barrier to entry. Holders also enjoy low PAXG fees, easy online exchange, portability, and other benefits of cryptographic money.
Users can own fractions of physical gold without the hassle of storage and transportation. PAXG is divisible up to 18 decimal points, and the minimum purchase amount is 0.01 oz t., or around $20. For comparison, a single share in a major gold ETF may cost ten times more.
Finally, PAXG can be traded anytime, while conventional investment routes work during business hours.
Holders can redeem their tokens at any time. Apart from gold (allocated or unallocated), they can receive fiat money or another cryptoasset.
Aside from trading, crypto platforms also support PAXG lending and PAXG staking. This stablecoin works with different elements of the blockchain ecosystem: Ethereum-based wallets, DApps, and DEXs.
Ethereum is one of the longest-running and most widely adopted networks. It is also poised to become more secure thanks to increased participation following the Merge.
The value of PAXG mirrors the price of gold, so its drops are limited by the trends in the commodity markets. In comparison, unpegged cryptocurrencies have no anchor that would stop them from (theoretically) becoming worthless. At the same time, holders benefit from the supply/demand dynamics — over the past 20 years, gold prices have increased by over 438%.
Disadvantages of PAXG
All gold-pegged stablecoins are susceptible to downtrends in the gold market. Investors should keep an eye on the fundamentals and PAXG coin news. For instance, when gold production exceeds the demand, the price heads downward. Large amounts of gold bought or sold by speculators create imbalances that also sway the price.
Over the past decade, gold's most spectacular fall occurred between October 2012 and July 2013 — the PAXG to USD price shed more than 25% over the nine-month period. In comparison, BTC is still 71.1% below its all-time high 11 months ago ($69,044.77 on November 10, 2021).
PAXG's market value tracks the price of physical gold. The latter, despite its status as a store of value, sees ups and downs. For example, the PAXG price rose above $2,000 in January 2021, dropped below $1,700 the next month, and soared to an all-time high of $2,155.11 in May 2021.
This year, geopolitical uncertainty prompted many investors to turn to gold as a safe haven. As a result, on March 8, PAXG rocketed to $2,071.93. As of this writing, one token is worth $1,703.74, with a year-to-date change of -6.99%, according to CoinDesk. The total market cap is $516.53 million, with a 24-hour volume of $10.36 million.
What’s the difference between PAXG and gold ETFs?
PAXG is a digital representation of gold, as each token is redeemable for one fine troy ounce of the precious metal. While some exchange-traded funds (ETFs) also track the value of physical gold, they do not involve full ownership. Investors only gain exposure to the price.
An ETF shareholder is a party in an agreement that represents entitlement to a percentage of the pooled gold. By the time of settlement, the contract value could be lower than the value of the underlying commodity.
How to buy PAXG
The easiest way to get hold of PAXG is through exchange — trading fiat or other digital assets for tokenized gold. Alternatively, you can buy PAXG with US dollars or unallocated gold using the official Paxos UI. Thus, one may purchase PAXG in three ways:
- through a PAXG exchange
- for USD at spot price (creation fees apply)
- for unallocated gold (converting holdings from a Loco London unallocated gold account into allocated physical gold tokenized as PAXG)
Pax Gold on CoinLoan
CoinLoaners can get PAXG quickly through our app or web platform. Get Pax Gold by exchanging other cryptocurrencies or fiat, take out a quick loan backed by your crypto holdings, or deposit the stablecoins to earn an attractive yield.
As a regulated financial institution, CoinLoan is a trusted and secure provider. Our user-friendly platform suits different crypto investment strategies. Create an account, add PAXG to your portfolio, and capitalize on its strengths in one or more ways:
Use PAXG as collateral for crypto loans
Discover PAXG lending with CoinLoan's crypto-backed instant loans. No additional paperwork, no credit checks, no income proof — all you need is a registered account. Borrow other cryptocurrencies with ease! CoinLoaners can choose a convenient loan term and LTV based on their needs.
Earn interest on PAXG
Deposit your holdings to Interest Account for effortless yield. Earn above-average standard compound PAXG interest, or boost PAXG yield through CLT staking. CoinLoan offers:
- 5.2 % APY on PAXG
- Up to 7.2% APY on PAXG with CLT Staking
Buy or swap PAXG on CoinLoan Exchange
Use our trusted Crypto Exchange to buy or sell PAXG in seconds. You can swap it for fiat or other digital assets included in our trading pairs, such as PAXG/BTC, PAXG/ETH, and PAXG/BUSD. The experience is seamless — enter the desired amount and click or tap Exchange.
Gold-backed stablecoins give exposure to gold markets in seconds without ETFs, futures, or other derivatives. In addition to versatile use cases, PAXG comes with a low barrier to entry and multiple redemption options, including LBMA-accredited gold bullion bars. You can buy and sell tokenized gold, use it as collateral, or earn an attractive APY by keeping your holdings on CoinLoan.
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The information provided by CoinLoan (“we,” “us,” or “our”) in this text is for general informational purposes only. All investment and financial opinions expressed by CoinLoan in this text are from the personal research and open information sources and are intended as educational material. All outlined information is provided in good faith. However, we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information in this text.