When the economy is turning for the worse, investors often turn to gold as a hedge against inflation as its market price naturally maintains itself or even rises as the value of fiat currencies fall. Even in worst-case scenarios such as all-out wars between countries–when paper money teethers on the edge of losing its value overnight–gold always survives.
But owning gold assets can often be more of a burden. Not only is it rather difficult to acquire, but there is the problem of safeguarding it and the added costs of insuring it. And despite its reliable value, gold is not so readily convertible to more liquid assets should you need to spend it immediately.
One viable alternative is the use of gold-backed stablecoins such as Pax Gold (PAXG). As a cryptocurrency backed by the actual asset, PAXG allows you to own gold without having to worry about how to secure it. As a cryptocurrency, the only thing you need to do is to safeguard your private keys to your crypto wallet to be the proud owner of actual gold reserves.
How does PAXG work?
PAXG was developed by Paxos to make trading with gold easier and more accessible for more people. Paxos is a fintech firm based in New York, which also co-developed Binance USD (BUSD), currently the third largest stablecoin by market capitalization.
Similar to how 1 BUSD is backed by 1 US dollar at all times to ensure exchangeability, every PAXG token which is minted is backed by a 400-ounce gold bar kept in Brink’s vaults in London. But unlike having to pay for storage fees if you had acquired the gold yourself, owning PAXG tokens does not charge any storage fee to secure the gold backing it.
PAXG tokens can then be traded on the market carrying the actual value of the gold they represent.
All of the gold used to back PAXG is likewise accredited by the London Bullion Market Association (LBMA) while Paxos regularly undergoes auditing in compliance with New York State Department of Financial Services (NYDFS).
In fact, PAXG holders can view the serial number and physical characteristics of the gold they own through the PAXG allocation lookup tool. For those who wish to redeem their actual physical gold, they may do so for a minimum amount through the PAXG wallet dashboard. Once redeemed, the equivalent amount of PAXG tokens are then “burned” or removed from circulation.
How does PAXG compare with gold ETFs?
The other option aside from acquiring physical gold is buying gold exchange traded funds (ETFs) which lets you own shares of gold for trading on the stock market. But for the most part, buying ETFs are not easily available for the average person, and would require a broker to set up the purchase. Buying ETFs as well may come with regulatory restrictions depending on where you are residing in the world.
But unlike ETFs, PAXG is readily accessible to anyone with an internet connection and does not require a brokerage firm or middleman to facilitate the purchase since transactions are all conducted directly on a peer-to-peer (P2P) blockchain network.
Furthermore, transaction settlements are settled instantly, unlike ETFs which may take up to a day or two to be processed.
PAXG is an ERC-20 token which has a circulating supply of around 339,000 tokens as of August 2022, equating to about 135 million troy ounces of actual gold held in reserve, and valued with a market capitalization of $604 million.
As a stablecoin, its supply is always matched to the demand for the token, and thus there is virtually no maximum supply for the asset as long as there are enough gold reserves to be
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DISCLAIMER: The statements in this article do not constitute financial advice. PDAX does not guarantee the technical and financial integrity of the digital asset and its ecosystem. Any and all trading involving the digital asset is subject to the user’s risk and discretion and must be done after adequate and in-depth research and analysis.
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