I read the Paxos Gold Whitepaper so you don't have to

PAXG - Paxos Gold

What is it?

Tokenized version of Gold on the Ethereum Blockchain. Makes it easy to hold, trade and lend gold without the burden of moving, securing and holding the physical asset.

Why should it exist?

Access to investment grade gold is reserved for a very few with access to purchase and store it. Paxos solves this by digitizing gold bars and making them available on the Ethereum Blockchain as a ERC-20 token. PAX Gold is regulated by the NYDFS.

Overview of the Gold Market

The market consists of a variety of ways to buy gold. OTC in London where you must have access to a set of banks (LPMLC) to manage the trades. Spot ETFs that are backed by gold or in most case futures contracts. Retail gold outlets that make it easier to purchase small amounts of gold but generally have large fees and poor quality product.

PAX Gold Design

• 1 PAXG = 1 Gold OZ at the current spot value.
• ERC20 token on the Ethereum Blockchain.
• Tradable 24/7, no need to wait for a market to open or a business.
• Regulated by NYDFS.
• Democratized access to investment grade gold down to 0.01 PAXG.
• Bankruptcy Remote - Gold backed by PAXG does not become part of the Paxos estate if the company is insolvent.
• Decentralized and easy to trade.
• All tokens are linked by to a serialized gold bar.

Smart Contract

The smart contract is a proxy which allows it to be modified over time to add new features or fix potential issues with the contract. It adheres to the ERC-20 Token Interface. It also has methods to freeze assets for any holder due to legal reasons.

Oversight

Approved by NYFDS, Paxos claims that this token cannot be interpreted as a security from their legal counsel. Monthly audits to ensure the token is properly backed. Security audits on their contracts from multiple security firms (NomicLabs, ChainSecurity, Trail of Bits). They also use several companies to monitor transactions for fraud (ComplyAdvantage, ChainAnalysis).

How do they make revenue?

All trades that take place have a fee associated and Paxos takes their cut. The fee is for the value of the trade and currently sits at 0.02%. If you were to trade 1oz, their cut would be a couple quarters at today's price.

My take

Positives

• Fractionalized ownership of investment-grade gold.
• Takes out the guessing game when purchasing gold as to the level of purity.
• Fees are far less:
  • JM Bullion cheapest 1oz here $2,011.88.
  • 1oz PAXG on Uniswap $1954.97 + $5.28 gas fee = $1960.25.
• Can lend the coins to other platforms to earn yield or transfer fees like LPs.
• Don't have to deal with the physical asset.

Negatives

• They have the power to seize funds built in to the contract.
• You are not actually holding the gold, this is a proxy investment.
• They have a mapping of PAXG to the serialized numbers but this is not stored on the blockchain, you have to use their website.

Extra Information

• Whitepaper
• Attestations
• Ethereum Contract
• Github Repo