We’re thrilled to announce that this week we launched the Paxos Standard token, a new digital asset that is collateralized 1:1 with the U.S. dollar. You can call it a dollar-pegged stablecoin, or a tokenized dollar; however you look at it, it’s a digital representation of a dollar. You can always buy or redeem Paxos Standard on a 1:1 basis with the dollar, and every Paxos Standard token is fully backed by dollars held at U.S.-domiciled FDIC-insured banks.
We’re also excited to announce we are approved by the New York State Department of Financial Services to issue Paxos Standard. As the first regulated financial institution to issue a crypto asset approved and overseen by a regulator, we believe we’re bringing an unparalleled level of trust and protection to the world of digital assets. If you take the concept of crypto assets but ensure its always issued and redeemed 1:1 for dollars, you finally have a crypto asset that has payment utility, not just speculative store of value. (For more on this concept, read our white paper.)
But we’re not here to try to just increase adoption of digital assets for its own sake. We believe that Paxos Standard will help us to solve a much bigger problem we’re tackling: mobilizing assets anywhere, anytime. And believe it or not, our story begins 10 years ago…
What the financial crisis revealed about systemic problems
The crisis started in 2007 in subprime mortgages and general excess leverage, but didn’t stop until it dominoed into real estate, banking and nearly every other sector of the economy. Why was it so widespread? Every collapse of a mortgage company, bank or broker-dealer caused aftershocks that rippled out farther than expected because of settlement risk — the significant lag in time it takes to settle every kind of transaction. Deals, trades and payments can take days or weeks to settle, so the demise of any one financial institution affects the system at large because there is no way to resolve all the outstanding, pending positions and unravel the broken ownership chain. The system is constantly under settlement risk, and this only became painfully apparent as the key exacerbating factor for why the crisis nearly death spiraled.
Since then, our main attempts to solve this problem have been through legislation and regulation codifying the creation, use and necessity of bigger and bigger central counterparties. These measures restrict access to the financial system and creates ever higher capital requirements, too big to fail institutions and unnecessary inefficiency.
We believe there’s a better way to remove settlement risk through decentralization, technology and innovation while increasing access.
Using blockchain technology to simplify settlement
Why does settlement have so much risk today, and why does it take so much time? The major reasons are antiquated systems, layers of intermediaries and the artificial limitations of business banking hours. Blockchain technology offers a different solution, enabling us to move assets anytime, instantaneously, in a programmable way and with an auditable chain of title, replacing the need for old systems and manual processes. We already use the blockchain to move digital assets this way… now with Paxos Standard, we can move payments instantaneously, too.
So why should I use Paxos Standard?
Today, there are a couple immediate ways to use PAX:
- Through itBit and other exchanges where PAX will be available for traders to move digital assets into PAX while hedging against volatility (cheaper and faster than cashing out into dollars and crossing the digital-to-fiat divide)
- Through trading desks to settle the cash side of any crypto trades instantaneously and 24/7
Right now, it’s most useful in trading against digital assets. But eventually, it could be used to settle transactions with any assets, not just assets that are digitally native, but assets that are physical (commodities) or securities (stocks and bonds), which we’re working on now. It could also be used in commerce, fulfilling the original hope for bitcoin. It could finally level economic opportunities for people around the world, reducing dependencies on volatile, native currencies and enabling cross-border payments. This could profoundly change the financial system and, very importantly, access to it.
And why should people use Paxos Standard and not another stablecoin?
Since we are a Trust company that has regulatory approval to issue this token, our regulatory requirements that ensure the token is fully collateralized by the dollar. And since we are issuing the token directly, we can make sure we have the shortest redemption windows and lowest fees available.
Most importantly, we’re playing in a vast sandbox that gives Paxos Standard utility far beyond the scope of digital assets, which we believe will give Paxos Standard staying power.
Today, we tokenized the dollar… Tomorrow, everyone in the world can participate in an open, frictionless, global economy. This is one step on an important journey toward an inclusive and modern financial system.