On September 5, 2019, Paxos Trust Company announced the launch of the first convertible asset, PAX Gold, which is approved by the New York Financial Services Department (NYDFS). Recently, Babbitt interviewed Rich Teo, co-founder and CEO of Paxos Trust, and interviewed PAXG products and the gold stable currency market.
The following is the full text of the interview:
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Babbitt: Why did Paxos decide to launch a gold-linked stable currency?
Rich Teo: There is a fundamental contradiction in the current gold market: there is currently no investment-grade physical gold product that is both easy to hold and easy to trade. Buyers can have a large number of investment-grade registered physical gold, but the storage cost is high, it is not easy to divide, and the movement is cumbersome, so it is difficult to carry out spot trading or leverage trading.
Investors can trade unregistered gold, gold ETFs or gold futures as an alternative, but these are financial derivatives or securities, not the ownership of the underlying gold. The products traded are only the value of synthetic gold. In other words, for investors, the price of liquidity and severability is the lack of ownership of real physical assets.
Paxos offers a new solution with PAX Gold (PAXG). By licensing and winding this gold, Paxos can enable anyone to own some of this gold (the London standard delivery gold bar stored in the London professional vault facility, the ownership of the gold bar can be split to 18 after the decimal point) The challenges facing the gold market. Babbitt: There are already some gold-backed stable currencies on the market, such as DGX. But as the leading gold stable currency, DGX has a market value of only about 5 million US dollars. Are you worried about the market prospects?
Rich Teo: There are already many attempts to digitize gold in the market, both blockchain- based and blockchain-free, but none of them have achieved considerable market size. Moreover, many products are actually supported by gold from unknown sources (ie non-London standard delivery bars), or even not necessarily supported by physical gold. On the other hand, the problem is how the storage fee is handled. Some products stipulate that any exchange or wallet holding a user token must pay a certain amount as a custody fee. There are also projects that charge for the depreciation of tokens. Both methods are not ideal, so many crypto-equity exchanges are reluctant to put these gold stable coins.
Paxos has unique advantages in these areas, so it is not worried about market prospects: 1) Paxos Trust Company is a regulated financial institution and a qualified custodian. PAXG is also approved by NYDFS and is regulated by NYDFS. 2) Paxos maintains a good relationship with large institutions in the gold market and is therefore able to establish partnerships with top gold suppliers, treasury and mines. 3) Paxos has a successful precedent for creating asset-backed tokens, and has issued a compliant dollar stable currency PAX). Babbitt: Where will PAXG be put on the shelves?
Rich Teo: PAXG will be available on exchanges, wallets, lending institutions, payment platforms and other platforms that support ERC-20 tokens.
Babbitt: If I have purchased enough PAXG, can I exchange these tokens for physical gold? How do I get a gold bar?
Rich Teo: If the customer holds more than 430 PAX Gold tokens, the token can be exchanged for a complete physical gold bar. Customers can log on to the Paxos website and start the redemption process there; the customer service team provides detailed information to help customers confirm purchases, deliveries and pick up.
Babbitt: From the investor's point of view, what is the difference between PAX Gold and Gold ETF?
Rich Teo: ETF is a composite of gold value, PAX Gold stands for real physical gold. So if the user owns PAXG, they have a portion of the target gold, which can be exchanged for gold.
Babbitt: If the exchange launches PAXG's leveraged trading, it means that investors have another way to short gold. Will Paxos encourage exchanges to introduce PAXG derivatives such as futures contracts and permanent swaps?
Rich Teo: We are actively promoting the use of PAXG worldwide, and derivatives are a good complement. Since the launch, many exchanges around the world have contacted us because they recognize that PAXG offers many opportunities for new trading strategies. Gold has generated a lot of investment interest as an asset class, and we are happy to integrate gold with the encryption world.
Babbitt: Borrowing will be an important use case for PAXG. What plans does Paxos have in this regard?
Rich Teo: Historically, gold has been an important lending collateral. PAX Gold may be used by encrypted lending platforms, allowing users to borrow interest through lending, holding gold and earning additional interest, which may be particularly attractive to users. We plan to establish partnerships with more lending institutions in the encryption and traditional financial sectors.
Babbitt: Bitcoin is called “digital gold”. Many people think that it will become a value storage that is widely accepted by the public. What do you think of this point of view?
Rich Teo: The encryption market over the past two years shows that this is the case. Encrypted investors seem to think that Bitcoin is the safest asset, and its liquidity is enough to allow it to trade with all other assets. Bitcoin is as powerful as gold in terms of value storage. However, bitcoin is not gold, PAX Gold is the real digital gold.