There’s a new crypto-asset available as of Monday morning, and it’s yet another effort to come up with a U.S. dollar-backed cryptocurrency.
Called Paxos Standard (PAX), the new token is maintained by blockchain technology company Paxos. The firm endeavors to digitize different kinds of assets so that they can be traded anywhere at any time using the blockchain. For now, the company can securely track trades of securities and precious metals, but will expand to support commodities of any other type down the road.
Its new PAX token is an important piece of this puzzle.
PAX is one of a family of so-called “stablecoins,” those cryptocurrencies that are designed to do away with cryptocurrency’s notorious associations with volatility. One PAX will always equal $1.00, and Paxos will have every cent of its USD-backed crypto-economy represented by actual cash on hand, kept in FDIC-insured bank accounts around the world. They’re not printing virtual dollars all willy-nilly, and none other than the New York State Department of Financial Services says so.
Despite cryptocurrency’s generalized “Wild West of fintech” character, Paxos is loaded with credibility and regulatory street cred. As the first virtual currency company to hold a trust charter, Paxos has demonstrated to the big dogs that it plays by every rule it can in this emergent space. It’s a badge of legitimacy that enables the company to work with mainstream financial institutions. As a result, the often-obscure crypto world now has a useful analog to the U.S. dollar. This means we can bring sexy blockchain technology to the age-old economic problems, like settlement risk.
There are often huge delays in when companies charge for a service or product versus when they actually receive the associated payment. Income from credit card purchases is only received after contact with a credit card company, for example. This means some businesses have to keep sums of cash on hand. There is a big difference between billing for something and receiving payment for that something.
But tokenized dollars would see greenbacks come and go with the ease of sending and receiving an email. The faster money can move where it is supposed to, the less important it becomes for companies to keep cash on hand.
“It doesn’t make sense that we can move massive amounts of information around the world using the internet, but can’t transfer assets with the same level of convenience,” said Paxos head of marketing Dorothy Chang. “Why are we held up by banking business hours? A tokenized dollar is a faster, more freely available means of transfer.”
Other firms echo this thinking and are taking their own actions in parallel. Gemini Trust, the crytocurrency exchange owned and operated by the Winklevoss twins, has also issued its own regulation-compliant USD-backed token, called the Gemini dollar.
As the future of money goes increasingly digital, it’s clear that we will need a robust bridge from paper dollar to crypto dollar. Companies like Gemini, Paxos, and others will find themselves competing to build a fan favorite crypto-dollar with low barrier to entry and mass appeal.