Pax Gold: a Gold-Backed Cryptocurrency

Pax Gold is the most important gold-pegged stablecoin on the market. To understand the advantages of such a currency, let’s first see how traditional gold investing works.

Gold as an investment

There are several ways to invest in gold in the traditional market.

Each involves a different financial instrument. Find out more about financial instruments in our article.

It is possible to buy bars or coins either online or in physical shops. However, this involves several risks and complications:

Futures are contracts that generate profit based on the price outcome. They are financial products suitable for experienced traders. Derivatives that allow trading on the gold price trend are practical as they enable one to hold money in gold without possessing physical gold.

ETFs are known to be an accessible and manageable asset class even for non-experts, but they must be understood anyway.

This kind of ETF holds a certain number of gold bars for each ETF unit issued. Buying an ETF unit, therefore, means owning part of the gold held by the fund.

Since these ETFs hold physical gold, their prices move in step with the price of gold in the short and long term.

Stocks work differently from gold price-tracking instruments, as their performance depends on the performance of the company as well as the demand for gold.

In this case, you need to pay attention to how well-established and reliable the company you are buying shares in is, and to its growth and production potential. Find out more about shares as a financial instrument in this article!

It is also possible to combine the characteristics of the last two financial instruments. There are also ETFs that hold shares in gold-producing companies. They usually collect shares of companies that are either high performers or long-established in the market, but it is worth doing your own research.

This type of ETF is diversified and protects against the failure of a single company, but you remain vulnerable to crises that affect the entire industry.

Why do people invest in gold?

Gold has always been considered a safe-haven asset. This means that it is an asset that people turn to in times of economic crisis. While stocks and bonds take the brunt of a market downturn, gold often manages to stay afloat, if not perform positively.

This is because its value is not correlated with the performance of the rest of the market.

The main factor contributing to keeping its price positive is scarcity: for an asset to be of value, it is essential that it is not too widespread or easily available. Gold meets this criterion perfectly, as its supply is notoriously limited.

Can gold be obtained in the form of cryptocurrency?

Yes, Pax Gold is currently the most successful attempt to combine the advantages of gold with those of a blockchain-based currency. 

A cryptocurrency designed to replicate the gold price thanks to physical reserves of the metal. Some consider it a stablecoin, although, unlike the more famous ones like Tether (USDT) and USD Coin (USDC), it was not designed to maintain a stable value in absolute terms. In other words, its value is destined to fluctuate based on the physical gold price and not on the supply and demand of the token itself, as is the case with most other cryptocurrencies. 

Therefore, it should always be identical to the prices of gold futures. Being issued by Paxos, a company and anchored to reserves held by financial institutions or banks, Pax Gold is not completely decentralised but is based on typically decentralised blockchains. 

PAXG, for example, is an ERC 20 that circulates on the Ethereum blockchain but can also be supported by other blockchains. 

The advantages of using digital assets backed by gold over traditional forms of gold are evident, especially for those who own other cryptocurrencies:

Things to pay attention to before buying this type of stablecoin

They have documented and transparent reserves.

Pax Gold’s Features

Pax Gold was created by the Paxos Trust Company, which also issued the dollar-pegged stablecoin Pax Standard (PAX), renamed in 2021 to Pax Dollar (USDP).

Paxos is a trust and custodian company, regulated by the New York State Department of Financial Services. PAXG is also approved and regulated by the DFS. A nationally renowned auditor certifies each month that the PAXG token supply matches the underlying gold.

Each PAXG token is guaranteed by a 400oz fine troy ounce (t oz) from London Good Delivery, stored in the vaults of Brink’s, which is the London Bullion Market Association’s approved storage company.

If you own PAXG, you own the underlying physical gold, held in custody by the Paxos Trust Company.

In fact, PAX Gold is the only gold token you can redeem for LBMA-accredited Good Delivery gold bars. Smaller amounts can be redeemed through a network of physical gold dealers.

Pax Gold is therefore a great way to buy gold safely and securely, thanks to both its full regulation and blockchain technology.

On top of that, in comparison to other gold-backed cryptocurrencies, it is in a much higher position in the market, namely among the top 200.

Diving Deeper: Allocated vs Unallocated Gold

It is important to know this difference especially when you intend to buy physical gold. It’s all about ownership.

Allocated physical gold gives you full ownership of the gold underlying the investment: you do not become a creditor of a company or a bank, you are in effect the legal owner of a quantity of gold.

Most providers of physical gold investments actually deal in unallocated gold.

Unallocated gold is obtained in the form of an account comparable to a bank account: you become a creditor (not an owner) of an asset, and the institution that issued the credit is entitled to use the asset for its own benefit.

An investment in unallocated physical gold leaves you exposed to the risk of insolvency of the issuing institution, whereas usually in gold you seek the safety of a safe haven asset.

Moreover, the gold offered exists only in part, and if hypothetically all customers wanted to redeem the physical gold, the reserves would not be sufficient to satisfy all creditors.

Regulatory developments: will Pax Gold comply with MiCA? 

The entry into force of European Regulation No. 2023/1114 of 31 May 2023, relating to Markets in Crypto-Assets (MiCA), marked a milestone for stablecoins and the digital asset market throughout the European Economic Area (EEA). An initial block of the regulation came into effect on 30 June 2024, significantly impacting stablecoins. 

MiCA defines stablecoins into two main categories: ART (Asset-Referenced Token) tokens and EMT (E-money Token) tokens, for which specific requirements are outlined in Articles 16 and 48 of the regulation. 

Furthermore, the Italian government approved a Legislative Decree on 25 June 2024 to align the national regulatory framework with the MiCA Regulation. This ensures coordination with existing sectoral provisions in Italy, particularly with the TUB and the TUF. 

However, it is specified that there currently needs to be a precise and defined list of which tokens fall into each category mentioned above, making the interpretation of the regulation still unclear. Additionally, Paxos still needs to publish an official communication regarding its position, making it impossible to determine the category to which the PAXG token belongs and its possible compliance with the Regulation.

 As Young Platform, we constantly monitor the situation to promptly update our users with any news on the stablecoins’ compliance.

Further Information 

To learn more about PAX Gold, visit the official website, consult the documentation, and read the whitepaper. 

You can contact the team via the contact page if you have any questions. 

In case of a complaint, send a support request through the help centre or by calling (855) 880 5275. In the State of New York, you can also direct your complaint to the regulator: New York State Department of Financial Services One State Street New York, NY 10004-1511 1-800-342-3736. 

For information requests or subpoenas from law enforcement, contact [email protected].

This marketing communication is issued by Young Platform S.p.a., an authorised cryptocurrency exchange and digital asset service provider registered in France (Prestataire de Services sur Actifs Numériques —Autorité des Marchés Financiers) and Italy (Operatore Valute Virtuali (PSV1)—Organismo Agenti e Mediatori).

Young Platform S.p.a. is not responsible for such content or any errors in the content or actions taken. The news content and third-party reviews or opinions are provided for informational purposes only and should not be considered investment advice. This information does not constitute a recommendation for purchasing or selling a particular digital asset or an investment strategy. Young Platform S.p.a. does not guarantee the accuracy, suitability or validity of the information provided or of a particular asset. Prices are indicative only and may vary. The data presented here may reflect assets traded on the Young Platform S.p.a. platform and other selected cryptocurrency exchange platforms.