Topics Stablecoin
Bybit Learn
Bybit Learn
Beginner
Aug 21, 2022

Pax Dollar (USDP): The World’s Leading Fully Regulated Stablecoin

Blockchain technology is revolutionizing the digital world and contributing to groundbreaking innovations in the crypto space, including the emergence of stablecoins such as Pax Dollar. As an integral part of the Paxos ecosystem, Pax Dollar is one of a few fully regulated stablecoins designed to limit volatility and provide peace of mind to crypto investors looking for stable returns and consistent long-term growth. 

In this post, we shed light on the Pax Dollar stablecoin (USDP), the popular Pax Gold token (PAXG) and the world’s leading compliance and regulation standards for each.

What Is Paxos?

Paxos is a blockchain ecosystem hosting a variety of fully regulated cryptocurrency products for individual traders, and institutional and enterprise customers seeking safer, less-volatile exposure to crypto markets.

As one of the only fully regulated blockchain ecosystems, Paxos is an umbrella platform hosting both the Pax Dollar stablecoin and the Pax Gold token. This crypto project offers full transparency and security surrounding the assets that back its USDP stablecoin, and Paxos aims to provide a seamless global payments system that serves to minimize the risks associated with market exposure.

Paxos’ Vision

The Paxos team envisions a progressive future in which blockchain technology isn’t just a driving force behind a financial revolution but a key element of its evolution. Paxos strives to eliminate the problems and improve the performance of the economic ecosystem by creating a fluid, frictionless global exchange system for both digital and real-world assets through the ubiquitous use of its stablecoin — Pax Dollar.

History of Paxos

Formerly known as iBit, Paxos Trust Company, LLC, was founded in 2012 by Cedar Hill Capital Partners co-founder Charles Cascarilla and principal analyst Rich Teo. With an impressive board including former U.S. Senator and Senate Finance Committee member Bill Bradley, as well as former Federal Deposit Insurance Corporation (FDIC) Chairman Sheila Bair, Paxos entered the U.S. market and launched its USDP stablecoin in May 2015 after receiving licensure from the New York State Department of Financial Services.

The name “Paxos” was chosen based on the legislative consensus system widely used on the Greek island of Paxos. Despite its antiquity, this system served as inspiration for the Paxos founders, who used the notion of computational consistency to develop the Pax stablecoin token, later known as Pax Dollar or USDP.

Backed by the U.S. dollar in accounts held at U.S. depository institutions, Pax Dollar was launched in September 2018, and later rebranded as the USDP stablecoin in August 2021. The PAX Gold token, which is tied to the value of gold rather than the U.S. dollar, was launched shortly thereafter to tokenize gold and provide customers with fractional ownership of the precious metal.

Today, some of Paxos’ partners include major companies and organizations from across the globe, such as PayPal, Société Générale, Credit Suisse, Revolut and StoneX, just to name a few.

Launch of Pax Dollar

In 2018, three years after securing a trust charter for digital assets from the New York State Department of Financial Services, Paxos developed and launched Pax Dollar (USDP). Unlike other cryptocurrencies, Pax Dollar is fully regulated and backed 100 percent by cash reserves to give investors exposure to crypto without the volatility that typically comes with it.

Launch of PAX Gold

The PAX Gold token was launched one year after Pax Dollar (September 2019). With full approval from the New York State Department of Financial Services, it became the first crypto asset redeemable for physical gold. By tokenizing the precious metal on the blockchain, PAX Gold has made it extremely easy for anyone to invest in actual gold, trade gold with minimal settlement risk and exchange PAXG tokens for both gold and fiat currency.

What Is Pax Dollar?

Pax Dollar (USDP) is an ERC-20 stablecoin backed by the U.S. dollar. As one of the most regulated active crypto projects and one of the only stablecoins approved by Wall Street regulators, Pax Dollar is collateralized 1:1 by USD to provide access to blockchain-based assets with minimized price risk.

In 2021, Paxos rebranded the formerly known Paxos Standard Token (PAX) to Pax Dollar (USDP). Pax Dollar remains a borderless stablecoin developed for multiple use cases, such as commerce, trading, peer-to-peer transfer, and holding as an investment and store of wealth.

Since 2021, using blockchain technology and issued as ERC-20 tokens developed on the Ethereum network, the industry-leading Pax Dollar tokens are produced by Paxos to help mitigate crypto volatility, hedge inflation, eliminate cross-border transaction fees and issue payment for blockchain-based assets.

While several other stablecoins have come under fire for lack of transparency regarding the assets backing them, Pax Dollar remains one of the most regulated and recognized stablecoins in the entire crypto industry.

How Does Pax Dollar Work?

Pax Dollar (USDP) is designed to allow anyone, anywhere to send and receive U.S. dollar-based assets with substantially greater availability and flexibility than traditional financial-sector instruments. Additionally, the fees assessed for using Paxos to buy, sell and trade USDP are far less.

With Pax Dollar, you can seamlessly transfer assets across borders almost instantly and with absolutely zero discriminatory requirements. In other words, through the use of blockchain technology, Paxos is helping people break free from the shackles of financial bondage by offering a stable, decentralized value asset with minimal risk.

To exchange USD for Pax Dollars (USDP), whether for transactional or investment purposes, you need to deposit USD into a Paxos account. Then Paxos will use their smart contract to generate USDP equivalent to your deposit amount. In turn, the minted USDP will be transferred and held in your account.

The process of exchanging USDP for USD is just as simple; in fact, it’s the same. However, after converting USDP to USD, the PAX coins are instantly burned and removed from circulation.

The minimum conversion amount is 100 USD, and unlike many other crypto platforms, Paxos doesn’t charge a fee for USDP conversion and redemption. All USDP stablecoin cash equivalents and reserves are stored safely in regulated accounts and are redeemable 1:1 for U.S. dollars anytime. 

Key Features of Pax Dollar

Pax Dollar offers crypto traders and investors several key features designed to mitigate risk and maximize stability.

Security

Since Paxos is a regulated trust, Pax Dollar is inherently more secure than most other cryptocurrencies and stablecoins on the market today. With legal permission to transfer assets with blockchain technology, additional transaction monitoring and using surveillance partners for another layer of compliance, transactions can be executed quickly and securely with zero risk.

Plus, Paxos follows OpenZepellin’s Pausable contract module, which helps minimize risk through the use of tested libraries of Ethereum smart contracts. This means the Paxos platform can pause USDP approvals and transfers whenever a security threat is present.

Regulated

Pax Dollar must operate under the strict regulatory oversight of the New York State Department of Financial Services. Therefore, USDP stablecoin users can be confident their insured crypto assets are in compliance and properly managed according to the “highest standards of consumer protection.”

1:1 Redemption

Cryptocurrency in general will continue to rise in both usage and value as decentralization becomes more and more prominent over time. However, it’s reassuring to know that Pax Dollar is backed by the world’s largest fiat currency, the U.S. dollar.

According to Paxos, Pax Dollar is reviewed monthly by Withum, a respected U.S.–based auditing firm. Each month, Withum must ensure that the supply of USDP matches the reserve supply of U.S. dollars that Paxos must hold to keep enjoying its highly regulated stablecoin status.

As already stated, Pax Dollar is backed 1:1 by the U.S. dollar. So, for every Pax Dollar issued, there is $1 held in an account to insure its value. In this regard, it’s similar to the gold standard used by the U.S. to back the dollar until 1971.

Bankruptcy-Remote Accounts

Along the same lines, as a regulated trust chartered by the New York State Department of Financial Services, Paxos has a legal requirement to keep a cash equivalent of all stablecoin reserves in fully segregated, bankruptcy-remote accounts.

This requirement ensures that USDP stablecoin owners can always redeem their investments in U.S. dollars, or their reserve currency, and have access to their funds. Since Paxos corporate funds are kept separate from the funds of token holders, there’s no need to worry about their solvency — you’ll always be able to access your funds even if the company were to declare bankruptcy.

Accessibility

Aforementioned, Paxos holds its required reserves in cash so customer funds are kept safe and always available for redemption. The accounts are audited monthly by Withum, the respected third-party firm, to ensure everything matches up. With nothing but a smartphone, anyone can purchase or redeem Pax Dollars instantaneously anywhere, anytime. You don’t even need a bank account.

USDP vs. PAXG

If you prefer stability and security over profit potential, Paxos’ USDP stablecoin is certainly interesting. Equally interesting, however, is the company’s other crypto token — Pax Gold (PAXG).

Similar to USDP, which represents $1, the PAXG token digitally represents one troy ounce of gold, stored in London’s high-security Brink’s vault. This presents an intriguing possibility for those seeking to own physical gold. Not only does the PAXG token allow you to do exactly that, but it also provides the liquidity of crypto combined with the security and immutability of blockchain technology.

For many, it’s a win-win. As an ERC-20 token built on the rock-solid Ethereum blockchain, you can move or trade PAXG anywhere in the world, or convert and redeem it in fiat currency or physical gold.

Just like USDP, PAXG is audited each month to ensure its token supply matches the gold assets held in its vaults. If that isn’t enough, the gold owned by each token holder is given an individual serial number, allowing you to trace your token back to the actual physical gold backing it.

With today’s uncertain economic conditions, gold’s safe-haven status is more prominent than almost ever before. In other words, Paxos may have struck actual gold with the release of PAXG in February 2021. In little more than a year, the token’s market cap shot up over 400 percent, outshining the market cap growth of the Tether Gold XAUt token by more than 150 percent over the same period of time.

Use Cases of Pax Dollar

Pax Dollar is specifically designed to have a growing number of use cases. Today, the stablecoin is primarily used to mitigate crypto asset volatility, reduce the friction involved with cross-border transactions and serve as a reliable means of payment for crypto, NFTs and other blockchain-related assets.

In the not-too-distant future, Paxos expects USDP to be used by consumers for making payments and held as a safe store of value, not just for U.S. token holders but for people around the globe.

USDP Tokenomics

As far as USDP’s tokenomics go, Paxos Trust Company, LLC, is the only entity able to alter the supply of Pax Dollars in circulation. There is no limit on the number of tokens the company can generate. That being said, new tokens are issued only when dollars are deposited into Paxos accounts.

When USDP is redeemed for cash from one of the segregated accounts, the tokens are destroyed immediately to ensure price stability and that the number of tokens in circulation matches the number of U.S. dollars held in reserve. This is how its 1:1 price ratio is maintained.

Withum audits Paxos monthly and publishes the reports citing its U.S. dollar reserves and the number of tokens in circulation.

Is Pax Dollar a Good Investment?

Given the level of trust and credibility Paxos is receiving from traditional institutions such as Bank of America, Credit Suisse, PayPal and Mastercard, it’s safe to say the company’s regulatory approach has been paying off. In fact, as regulators around the world try to decipher cryptocurrencies, Pax Dollar may be the key to crypto’s mainstream adoption.

Currently, Pax Dollar is ranked seventh on the list of stablecoins with the largest market caps. However, its 400-plus percent growth in just over a year suggests it may be moving up the list. All in all, Paxos’ ethos of providing security, honesty and complete transparency in backing up USDP with both AU and USD makes the Pax Dollar stablecoin an increasingly enticing investment vehicle for many individuals.

Closing Thoughts

Pax Dollar provides a safe, stable way for investors with little risk appetite to invest in crypto markets. As a Pax token holder, you can rest easy knowing you can redeem USDP 1:1 for U.S. dollars whenever you like. This backing, along with its charter and compliance with regulatory bodies, makes Pax Dollar a viable hedge against dollar inflation, economic uncertainty and crypto risks.