Dumping tether for a safer stablecoin just got a lot easier.
On Thursday, Paxos announced that its new stablecoin, Paxos Standard (PAX), is now tradable against Tether’s token (USDT) on the Binance exchange. ZB.com started making markets in PAX/USDT pairs a few days earlier and roughly 70 percent of PAX’s daily volume is traded on that exchange.
Like USDT, PAX trades at about 1-to-1 versus the U.S. dollar. But unlike tether, Paxos Standard is regulated by a government entity—the New York State Department of Financial Services. Tether maintains that it can’t be audited.
This has been an interesting week for Tether. As first reported by Modern Consensus, Tether’s reserve bank, Noble, is having financial difficulties. Further investigation by Bloomberg revealed that Tether and its sister company, the Bitfinex exchange, are no longer Noble’s customers and that the bank is trying to sell whatever is left of it. The Block reported that only a “skeleton crew” is left at Noble and its founding CEO, John Betts, has left.
Nonetheless, if Paxos wants to overtake Tether, it will have a long way to go. Launched less than a month ago, there are just about 15 million PAX tokens in circulation and volume has been at about $12 million worth in the 24 hours preceding this story’s publishing. Tether has $2.8 billion worth of its token floating around—a massive increase from just $10 million at the start of 2017. Half of all bitcoins traded on exchanges are traded against tether.
A frequent criticism of Tether is that the company ramped up supply—perhaps without full dollar backing—when Wells Fargo stopped being its bank in April 2017. Adding fuel to the fire is that the Commodity Futures Trading Commission subpoenaed Tether and Bitfinex in December. A month later, Tether lost it auditor, Friedman LP. The accounting firm was also subpoenaed by the CFTC.
Paxos was quick to point out, albeit subtly, the differences between its stablecoin and that of Tether’s in its press release:
“We believe Paxos Standard offers all the conveniences of other dollar-based stablecoins, but with greater customer protections and conveniences. Paxos always issues and redeems PAX tokens one-to-one against U.S. dollars held in FDIC-insured U.S. banks. With monthly attestations by an auditing firm and regulation by the New York State Department of Financial Services, Paxos Standard offers a stablecoin that users can trust.”
For its attestations, Paxos uses WithumSmith+Brown, PC, a Princeton-based firm of about 1,000 employees.
While tethers can be traded Paxos Standard tokens on the exchanges, customers can’t take their tethers directly to Paxos hoping to get PAX in return.
“Customers can only use USD to purchase Paxos Standard,” explained Paxos’s head of marketing and communications, Dorothy Chang, to Modern Consensus. “That is how we can ensure that every PAX token is backed 1:1 by dollars.”
“Verified Paxos customers can wire in USD to receive PAX directly from us at Paxos.com. Customers of our exchange, itBit, also have the option to withdraw PAX instead of USD if they prefer,” added Chang.
Around the time Modern Consensus’s story about Noble was published, PAX trades spike to $26 million in 24 hours, according to data from CoinMarketCap. We asked Chang if these were related.
“It’s always hard to say what exactly is motivating the market at any particular point in time,” she answered. “But we have certainly been hearing people asking for ways to convert their USDT to PAX and are happy to see that Binance now offers the trading pair, likely because they are also getting these requests.”
Paxos has some lofty goals for its token.
“We want to see it become the stablecoin of choice among institutional and retail traders of digital assets,” said Chang. “If we can achieve that, then there is more likelihood that it will gain adoption for broader use cases outside of crypto, and that’s when it gets even more interesting.”
When pressed further what that means, she responded, “It could be used to settle the payment side of any transaction more quickly, could be adopted by people living in jurisdictions with more volatile currencies, etc. We think it holds all the potential that we once put in bitcoin since it has many of the same technical properties with the addition of being stable and dollar-backed. But we can’t predict exactly what people will want to use it for, and we guess that there will be a lot of interesting use cases that we can’t even dream of right now.”