Many bitcoiners are former gold bugs who believe in “hard money,” so one crypto company is hoping digitized gold will attract more traders.
Paxos, the New York-based exchange and stablecoin issuer, just launched a gold-backed crypto asset called Pax Gold (PAXG), with each ethereum-based token encapsulating the legal title to a physical bar of gold stored in the Brink’s London vault. Pax Gold has been approved by the New York Department of Financial Services.
“It’s not a representation of the commodity, it’s actual legal title to it,” Paxos CEO Chad Cascarilla told CoinDesk. “This is the exact point of the blockchain, the exact premise, that you can now make [assets] easily moveable and divisible and not be tied to a manual, physical process.”
Each token costs the same as an ounce of gold and can be redeemed for a physical bar at partnering institutions such as Bullion Exchanges in New York. Cascarilla said Paxos will expand its list of global partners from the traditional commodities industry to ensure users can claim real gold even if they’re not in London or New York. Plus, the crypto loan startup SALT now offers PAXG-backed loans as well, available in fiat or stablecoins such as PAX, TrueUSD or USDC.
“We’re going to do more products like this where we are taking real-world assets and putting them on the blockchain,” Cascarilla said.
Still, it remains to be seen whether tokenized gold will appeal to crypto enthusiasts. Messari co-founder Dan McArdle told CoinDesk that assets issued by and custodied with centralized entities don’t rival bitcoin’s role as “digital gold.”
“Bitcoin achieves all of gold’s relevant properties, plus a lot more, and is just better gold for the modern era,” McArdle said. “Bitcoin achieves its properties precisely because it has no centralized or federated anchors to the physical world. You simply can’t get the trustless/uncensorable properties of bitcoin if some relatively small set of people/entities has to manage physical objects represented on a blockchain.”
Product-market fit
Paxos will need to find an audience of gold traders who are interested in crypto beyond bitcoin, as traditionalists on both sides are wary of tokens.
Bitcoin skeptics like Roy Sebag, founder of the precious metals custodian Goldmoney, don’t believe a self-custodied, relatively fungible cryptocurrency would bring new and compliant use cases to the broader gold market. It still requires a know-your-customer process.
“There’s zero value being added in terms of a decentralized blockchain,” Sebag said. “A closed system that is permissioned would be fine. We’ve already been doing that for five years.”
Indeed, the World Gold Council estimated gold-backed financial products like exchange-traded funds accounted for nearly $100 billion of the global market holdings in 2018. Paxos’ commodities trading platform, Post-Trade, secured a chunk of that pie by processing precious metal trades since July 2018. Now, with Pax Gold, retail investors will be able to participate in a broader range of digital gold trades beyond institutional platforms.
“We’re acting at that gateway, as a trusted holder of the assets, but also has trusted verifier of participants,” Cascarilla said. “Just like our Pax stablecoin, it’s audited.”
For traders who might want to buy gold on-the-go and then pick it up in another location, Cascarilla believes Pax Gold could offer a regulated alternative to physical ownership.
“You can own that gold but you don’t have to pay a custody fee, and you can send it around the world 24 hours a day, 7 days a week,” he said. “This is a groundbreaking product in the history of gold.”
Paxos CEO Chad Cascarilla image via CoinDesk archives