Though many stablecoins have been developed and released in the last few years, some are more trustworthy than others. That's what's lead to a whole slew of stablecoins to chase after financial authorities to give them their nod of approval. 

Can Paxos and its PAX token be the most stable of the stablecoins? We find out below.

What is Paxos?

The Paxos Standard Token (PAX) is an ERC20 token that is 100% backed by US dollars. For every one PAX being traded, there must be at least one US dollar in the Paxos bank accounts. Like other stablecoins such as the US Dollar Coin, PAX seeks to combine the longstanding stability and reliability of the US dollar with the benefits of a digital currency. Namely, that it can be transferred over the internet to anyone on the planet, immediately, at any time, and at nearly zero cost.

Like other ERC20 tokens created on the Ethereum protocol, PAX can be used as programmable money in smart contracts and used to interact with different dapps.

Who invented Paxos?

PAX was created by the Paxos Trust Company, which is based in New York, but also has offices set up in London and Singapore. They are approved and regulated by the New York State Department of Financial Services (NYSDFS). The co-founder and current CEO of Paxos is Charles Cascarilla.

Did you know?

Paxos is the first regulated trust approved to trade digital assets in New York. The Paxos board of directors includes a former Federal Deposit Insurance Corporation (FDIC) chair and a former US Senator.

A brief history

  • 2012 - Paxos was founded with the launch of its itBit exchange in Singapore.
  • 2015 - Paxos is granted a trust charter by the NYSDFS becoming the first company approved to offer crypto products and services.
  • 2018 - the Paxos Standard Token (PAX) is launched as a US dollar backed stablecoin.

What’s so special about Paxos?

Paxos is committed to a high standard of regulatory compliance by working with some of the most respected financial authorities. They are also regularly audited by top firms that independently verify the PAX token is indeed 100% backed by US dollar reserves. The transparency of their auditing process can be seen on their website which is updated every month to show the total US dollars Paxos has in reserves. By having all of their US dollars in US banks, Paxos reserves are also protected by FDIC insurance.

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Did you know?

The largest and one of the first stablecoins in the crypto industry,

Tether (USDT), has been the subject of constant controversy. The main criticism of Tether is that they do not hold reserves that are backed 100% by US dollars alongside accusations of poor auditing practices. Most recently, Tether has admitted to only having 74% of their USDT tokens backed by cash, which means for every one USDT in circulation, there are only 74 cents in Tether’s reserves. Tether has also been accused by the New York Attorney General of trying to cover up $850 million in missing company funds.

How does Paxos produce PAX?

PAX can only be created when new US dollars enter the Paxos system. One new PAX token is minted when a person sends one US dollar to Paxos, which eventually goes to a Paxos regulated bank account. When that person wants their dollar back, they must exchange it for one PAX and that PAX is then removed from the overall supply. This very simple system means that there will always be one US dollar for every one PAX in circulation. No PAX are pre-minted or created before they are bought so the total supply of PAX is completely based on demand for the token.

How do you get hold of PAX?

PAX can be traded on major exchanges and can be held by any crypto wallet that is compatible with ERC20 tokens. You can also buy PAX with US dollars and then trade PAX back for US dollars at any time using an official Paxos account.

What can you do with PAX?

PAX can be used for payments, transfers, and trading between other crypto assets. Because it is a stablecoin, it is mainly used as a stable store of value in exchanges, which means that crypto traders will trade and hold onto PAX to alleviate volatility in their crypto portfolio.

The Future

As a highly regulated and compliant cryptocurrency, PAX plans to eventually attract larger and more well-established institutional investors and financial organizations that are still mistrustful of most crypto companies. The Paxos team is also developing PAX as a way to help aid settlement for more traditional assets such as ‘commodities, securities, real estate and even more esoteric assets like fine art and collectibles.’ Finally, there is hope that PAX can be used by large ‘unbanked’ communities as a way to take advantage of all the benefits of digital money without the volatility.