PAXG, or Pax Gold, is a cryptocurrency backed by physical gold. Each PAXG token represents one fine troy ounce of a London Good Delivery gold bar, stored in professional vaults. Launched in September 2019, PAXG operates on the Ethereum blockchain as an ERC-20 token. It aims to make gold trading more accessible by combining the stability of physical gold with the flexibility of digital assets.
How PAXG Works
PAXG’s value is directly tied to the market price of physical gold. Each token corresponds to one ounce of gold held in secure Brink’s vaults in London, under the management of Paxos Trust Company. Token holders can verify the serial numbers and physical details of their allocated gold bars through Ethereum-compatible wallets.
PAXG can be exchanged for physical gold, fiat currency, or other digital assets. Transactions settle almost instantly, bypassing the delays typical of traditional gold trading. Paxos conducts regular third-party audits to ensure full transparency and that the gold reserves match the circulating token supply.
Benefits of PAXG
PAXG offers several advantages for modern investors:
- Accessibility: It allows fractional ownership of gold, making it possible to invest small amounts without the high entry barriers of traditional bullion markets.
- Cost Efficiency: There are no costs related to storage, insurance, or physical transportation of gold.
- Liquidity and Speed: PAXG transactions are fast and global, enabling quick trades and transfers 24/7.
- DeFi Integration: As an ERC-20 token, PAXG can be used in decentralized finance applications for lending, borrowing, or earning yield.
Limitations of PAXG
Despite its benefits, PAXG has certain limitations:
- Redemption Threshold: Redeeming PAXG for physical gold requires a minimum of 430 tokens, which is impractical for small investors.
- Crypto Volatility: Although backed by gold, the token’s market price can experience short-term volatility based on crypto market sentiment.
- Technical Risks: While the gold is securely stored, holders must protect their digital wallets from hacking or phishing attacks.
Practical Applications of PAXG
PAXG serves multiple use cases in today’s financial landscape:
- Digital Gold Investment: It offers a modern way to hold gold as a hedge against inflation or market uncertainty.
- DeFi Collateral: Users can leverage PAXG in decentralized protocols to generate passive income through staking or liquidity provision.
- Cross-Border Transactions: PAXG enables instant international transfers of gold-based value without logistical hurdles.
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Frequently Asked Questions
What is PAXG?
PAXG is a cryptocurrency fully backed by physical gold. Each token represents ownership of one troy ounce of gold stored in a professional vault.
How can I buy PAXG?
You can purchase PAXG on supported cryptocurrency exchanges. The process typically involves creating an account, completing verification, and funding your account with fiat or crypto to make a trade.
Is PAXG safe?
The gold backing PAXG is audited and held in secure vaults. However, like any digital asset, PAXG carries risks associated with the platform you use and the security of your personal wallet.
Can I redeem PAXG for physical gold?
Yes, but the process requires a minimum redemption amount—typically 430 tokens—to receive a standard gold bar. Smaller holders can sell their tokens on the open market instead.
How does PAXG differ from other stablecoins?
Unlike fiat-backed stablecoins, PAXG is backed by a physical commodity (gold), making it a commodity-backed token rather than a traditional stablecoin. Its value is derived from the price of gold.
What are the fees associated with holding PAXG?
Paxos charges a small annual custody fee for storing the physical gold, which is deducted from the PAXG holdings in users' Paxos-powered wallets.