The cryptocurrency startup known as Paxos announced on Thursday, September 5 that the New York State Department of Financial Services (DFS) approved the issuance of a gold-backed digital token and a stable cryptocurrency anchored to the dollar, in association with Binance.
The regulated financial institution had already announced it earlier this year, but points out the importance of having the same amount of dollars, precious metals or real-world shares as the assets registered in the blockchain. Through its Twitter account, the firm reported that the New York Department of Financial Services gave the green light to said asset called “PAX Gold” (PAXG), calling it the first virtual currency backed by gold in the state of New York.
In fact, Paxos CEO Chad Cascarilla stressed in an interview with Fortune Magazine that with each ethereum-based token the legal title of an ounce of physical gold stored in Brink’s vault in London is encapsulated.
In his opinion, the company wants to capture “any type of asset and introduce it into a blockchain. There, what you do with a gold token is to see how much gold you have in a vault, equal to how many gold tokens are pending
In a statement from DFS, also this Thursday, the announcement of the approval to Paxos of the PAXG gold-backed token, and also of the stable cryptocurrency BUSD, anchored to the US dollar, which will be launched this month by Paxos, is made. in association with Binance.
Cascarilla said that within the benefits of tokenization, each PAXG token costs the same as a troy ounce of gold (31.10 grams) and can be exchanged for a physical bar at partner institutions such as Bullion Exchanges in New York.
“In a digital and global financial system, owning physical gold is a cumbersome and outdated investment; it is not easy to trade, divide, move or leverage against other investments.
Although it is possible to easily market derivatives of gold, ETFs and unallocated gold, these are listed representations in small and limited markets and none implies ownership of physical gold. “
Cascarilla argues that gold purchased through non-accredited retail outlets is not only expensive, but also risky, since the quality and provenance of gold are not verified.
According to its platform, each PAXG token will be backed by a fine troy ounce of London Good Delivery gold stored in professional vault facilities in London.
Thus, users who own the aforementioned tokens have the gold they represent, but the tokens can be moved like any other ERC-20 token, which is substantially simpler than handling gold.
However, skeptics like Roy Sebag, founder of the Goldmoney precious metals custodian warn that Paxos will require attracting potential gold merchants who are interested in cryptocurrencies beyond Bitcoin.
In fact, the World Gold Council noted that central bank purchases and inflows of investment funds or Exchange traded funds (ETFs) have been the driving forces of gold demand during the first half of 2019.
However, he noted that the technology sector reduced its use of gold due to difficult global conditions, although the prospect is that this element of demand will establish a floor in the next quarters of the year. The supervisory body stressed that the solid growth in both mining production and recycling contributed to a 2% increase in total gold supply in the first quarter.
Crypto and gold have already done business before
Paxos has not been the only one to take this step since in January of this year, the Iranian government announced the PayMon cryptocurrency with the aim of evading international financial sanctions, which is backed by gold. In fact, the cryptoactive was the product of an alliance between four local banks and the Kuknos Company.
For its part, the Central Bank of Russia announced in May this year that it would be analyzing the possibility of creating a cryptocurrency anchored to gold.
Elvira Nabiullina, president of the Central Bank of Russia, said that a commission from the State Duma would decide that the objective of this instrument will be to implement payments and settlements with other countries.
However, he clarified that the Bank of Russia would prefer to make intergovernmental payments with legal tender. “We generally oppose the use of cryptocurrencies in our monetary system.” He said.