Overview
Pax Gold (PAXG) launched in September 2019 as Paxos Trust Company's tokenized gold product. Each PAXG token represents one fine troy ounce of a 400-oz London Good Delivery gold bar, stored in LBMA-accredited vaults in London. Paxos is a New York-regulated trust company supervised by the New York Department of Financial Services (NYDFS), giving PAXG a regulatory framework that most crypto products lack.
The NYDFS regulation is PAXG's primary differentiator. Paxos is required to maintain full reserves, undergo regular third-party audits (not just attestations), and comply with banking-grade operational standards. Monthly attestation reports by independent auditing firms confirm that PAXG's gold reserves match or exceed the token supply. This regulatory rigor provides a level of assurance that unregulated competitors cannot match.
PAXG is issued on Ethereum as an ERC-20 token. Holders can redeem for physical gold (minimum amounts apply), convert to USD at current gold prices, or trade on supported exchanges. PAXG's market cap of approximately $500M-$1B makes it the largest or second-largest tokenized gold product, trading closely with XAUT for the top position.
Peg Stability
Gold Price Tracking
PAXG tracks the gold spot price with high fidelity, typically within 0.1-0.3% of the LBMA gold price. The tight tracking is maintained through arbitrage — authorized participants can create and redeem PAXG directly with Paxos, keeping the market price anchored to the underlying gold value.
Creation/Redemption Mechanism
Paxos offers direct creation (deposit gold or USD, receive PAXG) and redemption (return PAXG, receive gold or USD). The creation/redemption process is available to verified accounts and operates on business days. This mechanism provides the fundamental price anchor, ensuring PAXG cannot persistently trade far from gold's value.
Trading Liquidity
PAXG has good trading liquidity on major centralized exchanges (Binance, Kraken, Coinbase in some jurisdictions) and moderate DEX liquidity. The regulated nature of the product attracts institutional market makers who provide consistent two-sided liquidity.
Collateralization
Full Gold Backing
Every PAXG token is backed by one troy ounce of allocated gold in LBMA-accredited vaults. The gold is allocated (not pooled), meaning specific bars are designated to back specific tokens. Paxos publishes bar-level information including serial numbers, refiner, gross weight, and fine weight.
Regulatory Audits
Unlike Tether's attestations, Paxos undergoes monthly third-party examinations by independent auditing firms (currently Withum). These reports confirm that gold reserves equal or exceed the PAXG token supply. The NYDFS requires this ongoing verification as a condition of operation.
Custody Standards
Gold is stored in LBMA-accredited vaults in London, operated by professional custodians meeting institutional-grade security standards. Insurance coverage is maintained per industry standards. The custody arrangement is subject to NYDFS oversight.
Security
Smart Contract
PAXG's ERC-20 contract is straightforward — standard token functionality with centralized mint, burn, pause, and freeze capabilities. The contract has been audited and is live since 2019 without exploit. Smart contract risk is minimal due to the simple design.
Regulatory Security
NYDFS regulation provides a security layer that purely crypto-native products lack. Paxos must maintain capital reserves, operational resilience, cybersecurity standards, and business continuity plans as required by the regulator. If Paxos were to fail, the NYDFS framework provides a resolution process.
Operational Track Record
Paxos has operated regulated products (PAXG, PYUSD, previously BUSD) since 2018 without operational failures, hacks, or fund losses. The company's track record under regulatory supervision is clean and provides meaningful assurance.
Decentralization
Centralized by Design
Like all tokenized physical assets, PAXG is fully centralized. Paxos controls minting, burning, compliance, custody, and has the ability to freeze tokens. There is no DAO or community governance. This centralization is inherent to regulated physical asset tokenization.
Compliance Functions
PAXG includes freeze and seizure functions required by regulators. Paxos can freeze tokens in response to legal orders and complies with sanctions requirements. This is the price of regulatory legitimacy — full censorship capability in exchange for legal clarity.
Trust Model
Users trust Paxos (the company) and the NYDFS (the regulator) rather than smart contract code or decentralized governance. This is a fundamentally different trust model than DeFi protocols, and users must evaluate whether they prefer regulatory assurance over decentralized guarantees.
Adoption
Market Position
PAXG is the largest or joint-largest tokenized gold product by market cap, with $500M-$1B in circulation. The regulated framework makes it the preferred choice for institutional investors, wealth managers, and compliance-sensitive users seeking gold exposure.
Exchange Listings
Listed on major exchanges including Binance, Kraken, and others. Trading pairs against USD, BTC, and ETH provide multiple entry/exit points. Exchange adoption has been steady, with PAXG benefiting from Paxos's institutional relationships.
DeFi Integration
PAXG has moderate DeFi integration — accepted as collateral on some lending protocols (Aave, MakerDAO), available in DEX liquidity pools, and used in yield strategies. DeFi integration is growing but limited by the smaller tokenized gold market compared to USD stablecoins.
Institutional Adoption
Paxos's regulated status makes PAXG accessible to institutions that cannot hold unregulated crypto assets. This institutional channel is a meaningful competitive advantage over XAUT and synthetic gold alternatives.
Risk Factors
- Full centralization: Paxos has complete control over PAXG, including the ability to freeze, seize, and burn tokens. Users have no decentralized recourse.
- Regulatory risk: Changes in NYDFS regulations, gold ownership laws, or sanctions requirements could impact PAXG's operations or accessibility.
- Paxos company risk: While regulated, Paxos is still a single company. Corporate failure, though mitigated by regulatory oversight, would disrupt operations.
- Physical custody risk: Gold vault theft, seizure, or catastrophic events, while extremely unlikely in LBMA-accredited facilities, would impact backing.
- Limited DeFi utility: Gold tokens have inherently less DeFi utility than USD stablecoins, limiting PAXG's growth within the crypto ecosystem.
Conclusion
Pax Gold is the gold standard (pun intended) for tokenized gold. Paxos's NYDFS regulation, monthly third-party audits, clean operational track record, and institutional-grade custody provide the highest assurance level available for on-chain gold exposure. For users who want verifiable, regulated gold exposure in token form, PAXG is the clear choice.
The 6.4 score reflects excellent peg stability and collateralization, strong security through regulatory oversight, and solid adoption, offset by the inherent centralization of physical asset tokenization and the relatively niche market for tokenized gold. PAXG scores higher than XAUT due to its superior regulatory framework, despite both being centralized products. The decentralization score is low by necessity — this is not a flaw but a product category constraint.