Pax Gold – Cryptocurrency Backed by Gold

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Pax Gold – Cryptocurrency Backed by Gold

Investing in cryptocurrencies through our Fumbi Index Portfolio represents an investment in a dynamically rebalanced portfolio composed of TOP cryptocurrencies on the market. This ensures that the investment evolves according to market movements and eliminates the risk of making a wrong choice which can occur when trading individual cryptocurrencies.


However, the following blog will introduce a cryptocurrency from a different product of ours – Fumbi Bitcoin and Gold. The cryptocurrency in question is PAX Gold.

What is PAX Gold?

PAX Gold is a type of digital asset in which one PAX token represents one troy ounce of gold in the form of a gold bar adhering to the rules of London Good Delivery. London Good Delivery is a set of rules issued by the London Bullion Market Association that describe the physical properties of gold.

You could say that anyone who owns a PAX Gold token owns the physical gold stored by Paxos.

The PAX Gold token is built on Ethereum according to the ERC-20 technical standard, thanks to which it is compatible with all Ethereum wallets that support ERC-20 tokens. Because all transactions operate on the principle of smart contracts, they eliminate human error. 

PAX Gold is available anytime and anywhere, unlike the physical gold – which can only be manipulated on business days.

Key Features of Pax Gold

  • Transferability – PAX Gold is transferable in several ways, unlike other gold products that currently exist. Clients can exchange their PAX Gold token for physical gold or cash. Through the company’s official website, clients can request the transfer of tokens for physical gold in the form of a gold bar – it is necessary to own at least 350 PAX Gold tokens.
  • Physical Allocation – The PAX Gold Token is backed by physical gold, with each gold bar having its own serial number. Thanks to operating on the Ethereum network, token transferability is simple, fast and secure.
  • Availability – The minimum investment amount for a PAX Gold token starts at 0.01 PAXG (approximately $20), with a fixed entry conversion fee of 0.02 PAXG ($40). As a result, PAX Gold opens up the opportunity to invest in gold not only for institutional investors but also for regular retail clients.
  • Low fees – PAX Gold fees are lower compared to other gold products. Paxos does not charge any storage fees. Transactions with PAXG tokens within the Ethereum network have a transaction fee of 0.02%.

There have been several attempts to digitise gold in the past, but none have seen significant market success. An example is the DGT (Digix Gold Token) token, which, like PAX, is backed by gold. However, the Digital Gold Token is backed at a rate of one token per gram of gold, while PAX Gold is backed at one token per troy ounce of gold. One troy ounce of gold equals 31.1 grams.

Another competitor is, for example, PMGT (Perth Mint Gold Token). This project was created in 2018. It is an ERC-20 token from InfiniGold. In this case, similar to PAX Gold, each token is backed by one troy ounce of gold.

Despite competing projects, PAX Gold has become one of the most popular tokens backed by physical gold through obtaining all the necessary licences and undergoing independent audits.

Gold Price Development

Gold became increasingly used as a refuge for investors during the coronavirus crisis. Several experts predict a rise in the price of gold because, unlike traditional money, it cannot be printed indefinitely. Bank of America predicts an increase in the price of gold over a period of 18 months to the level of 3,000 USD.

Currently, the price per troy ounce of gold is around 1,750 – 1,850 USD. Gold has the highest market capitalisation of all assets in the world. At present, its market capitalisation is estimated at almost 11.8 trillion US dollars. 

Gold price development chart for the last five years (troy ounce)

Source: TradingView

Risks associated with PAX Gold

  • Ethereum protocol risk – Ethereum blockchain itself is still in a state of constant development. It is currently undergoing a demanding transition to the Proof-of-Stake algorithm as well as many other changes. These changes can significantly improve the functionality of this protocol, but they can also lead to fatal errors and failures.
  • „Breaking the peg“ – This poses a risk based on the theoretical assumption that the PAX Gold token would not be backed by sufficient gold in the future. This could be the case, for example, if an audit showed that a company has lower gold reserves than the number of PAX Gold tokens in circulation. This risk is minimal since the company is regulated by the New York Treasury Department and conducts regular independent audits.
  • Theft risk – The risk associated with stealing gold reserves backing the company’s tokens. Should the gold be stolen, the PAX Gold token would lose its character of convertibility into physical gold and thus its collateral, which could lead to total devaluation of the token.

PAX Gold Today

Among all crypto assets, PAX Gold currently ranks 266th with a market capitalisation of more than $106 million. There are currently 60,161 PAXG tokens in circulation. As it is an ERC-20 token, it can be purchased on multiple exchanges and stored in a wide range of crypto wallets. 

The most well-known platforms on which PAX Gold is traded include Binance, Gemini, Kraken, and FTX.

About Paxos

Paxos is a regulated financial institution that aims to create an infrastructure that allows transfers and transactions between digital and physical assets. The goal of this company is to achieve a system in which all assets (money, stocks, commodities) will be fully digitised and controllable at any time.

Paxos is currently licensed, regulated and supervised by the New York Treasury Department (NYDFS). In July 2019, the NYDFS Treasury granted Paxos permission to issue its own gold-covered PAX Gold token. 

Furthermore, Paxos has successfully passed financial audits and audits of smart contracts carried out by independent third parties.

Partners

Paxos has accounts with Brink’s bullion vaults in London, one of London’s six gold vaults. Gold stored in this vault corresponds to the value of the issued PAX Gold tokens.

Paxos also has an account with INTL FCStone, a gold-trading company. This company arranges for the purchase and sale of gold from Paxos as needed, whether to issue or sell tokens.

Fumbi Bitcoin and Gold

The unique product Fumbi Bitcoin and Gold monitors the value of Bitcoin and PAX Gold so that your finances are distributed in a 50:50 ratio. The algorithm intelligently buys the cryptocurrency that has fallen and sells the one that has risen. Thanks to this combination, you can save your future easily and stress-free. 

What are the main benefits of this product?

  • Ongoing rebalancing – Your investment will always be evenly distributed between bitcoin and pax gold. As the bitcoin value increases, some will be sold, and gold will be bought to bring your portfolio back to 50:50 and vice versa. As a result, you will always buy and sell when it is convenient.
  • Lower volatility – Now, you can anchor your cryptocurrency investments with gold. You get both the potential of a fast-growing industry and the stability of gold.
  • Cryptocurrency backed by real gold – Cryptocurrency pax gold is backed by real gold, so it mirrors its true value. As a result, it brings you similar investment benefits as traditional gold investing.
  • Double protection against inflation – Forecasts say that both bitcoin and gold will grow, so you can now comfortably and easily invest in them to protect your finances from inflation.

Invest With Fumbi Today

If you are considering investing in cryptocurrencies, Fumbi is here for you. Our algorithm-administered portfolio accurately tracks the growth of the entire cryptocurrency market.

Fumbi is the first of its kind to offer cryptocurrencies to the general public, even at small deposits. Investing in cryptocurrencies through Fumbi is very easy and minimises risks.

You can start with a deposit of just €50.

INVEST WITH FUMBI

Did you come across a term you didn’t understand? Don’t worry. All essential terms regarding cryptocurrencies are in our Fumbi Dictionary

Juraj Forgacs

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