Paxos, a New York cryptocurrency company known for selling a so-called stablecoins pegged to the U.S. dollar, is getting into precious metals. On Wednesday, it announced a product called PAX Gold, which lets customers buy a digital token that is backed by one troy ounce worth of gold held in a London vault.
The company says the token provides customers with actual ownership of the gold in question—Paxos will even provide the serial number of the corresponding gold bar in London. Customers will also be able to buy and sell Pax Gold tokens on various blockchain networks, which will register the reassign the ownership rights to the gold. Paxos also notes that, since it is a regulated trust company, clients’ gold is totally secure, including in the event of bankruptcy.
The gold token is the first of its kind, which raises the question of why anyone would want to own it in the first place. After all, gold bugs have plenty of options to get exposure to the yellow metal—from ETFs to futures contracts to physical holdings. Why bother with a blockchain product?
According to Paxos CEO Chad Cascarilla, the token will offer the cheapest way to own gold directly, other than burying coins in your backyard, since Paxos will not charge annual custody fees. In an interview with Fortune, he added that PAX Gold is also cheaper and more redeemable than holding gold through an ETF. He also pointed to other advantages that are intrinsic to cryptocurrencies on a blockchain.
“There’s a lot of overlap in the mentality between the crypto world and those who hold gold,” said Cascarilla. “What you know have is the liquidity, divisibility, and transferability of crypto, while owning gold.”
He added that owning PAX Gold tokens doesn’t require knowledge of blockchains or cryptocurrency. Those who simply want to buy and hold gold can go to Paxos’s website and purchase the tokens, and let the company take custody of them. But those who wish to actively trade their tokens can obtain a digital wallet, sell their tokens, or even lend them out.
The service is not free, of course. Storing gold is costly and Paxos will be paying Brinks to guard the gold in its London vault—a cost that must be passed on to Paxos customers.
Cascarilla says PAX Gold will make money by charging a small premium on the gold, and also by charging a “tokenization” fee at time of initial purchase that will be 1% of the purchase of a single ounce, but that will drop significantly for larger purchases. He adds the Paxos will charge no custody fees, but will charge a transfer fee of 0.02% if a customer wants to buy or sell a token on a blockchain network. Cascarilla also says Gold Pax tokens will be available on cryptocurrency exchanges, but only on non-U.S. based ones for now.
The launch of PAX Gold coincides with an ongoing debate in the financial world of whether gold or Bitcoin, the most famous cryptocurrency, is a superior store of value for investors. One crypto company, Digital Currency Group, has even been running TV ads urging investors to “drop gold.” Paxos’s new token, then, may be seen as a bridge between the two camps.
“It’s a token backed by gold rather than a token backed by just computer bytes,” Cascarilla said.
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