In a Nutshell: The digital age has completely transformed many aspects of our lives, including the way we deal with money. The same goes for large financial institutions, as well. And while some institutions have been able to embrace certain aspects of fintech, other areas of infrastructure remain antiquated. Paxos is changing that with its mission to democratize access to the global economy by building infrastructure to allow frictionless movement between physical and digital funds. The company delivers valuable products and services to large institutions as well as retail investors.
When I think back to when I opened my first bank account way back in the 1990s, it seems like I could hardly write a check without having to visit the branch for some reason or another.
And while the internet technically existed, you could forget about logging onto a bank’s website to conduct business. If I wanted to check my balance, I had to call a toll-free number and press a lot of buttons. And it wasn’t even a real-time reflection of the balance. Nevertheless, it was more than my parents’ generation had, and I thought it was pretty cool.
And if I wanted to make a quick funds transfer from one bank account to another? Forget about it. Banking institutions didn’t have the infrastructure to move nearly as fast as they can today.
Needless to say, fintech has come a long way in recent decades. Certain areas of the finance ecosystem have embraced technology and learned how to leverage it to their advantage. For example, consumers engage with their banks much more frequently through online portals and apps these days. No more toll-free calls and far fewer branch visits.
But other areas are still struggling to keep up with the fast pace of the digital revolution, particularly when it comes to digital assets and blockchain technology.
That’s where a company like Paxos comes in.
“At Paxos, we are re-building the infrastructure of finance,” according to the company. “We want to make it possible to move any assets anywhere, instantly — and therefore democratize access to a new, global, frictionless economy.”
That means that banks don’t have to lag behind cutting-edge startups. With Paxos, traditional financial institutions can leverage the blockchain as if it has been built into its infrastructure all along.
Identifying the Shortcomings of Traditional Finance While Seeing the Potential for Blockchain
Paxos was founded in 2012 by Charles Cascarilla, who has extensive experience as a financial services investor and research analyst. Cascarilla spent the first 20 years of his career working at various hedge funds and banks where he closely studied financial services and markets.
He was particularly interested in how markets are structured, how money flows from place to place, and what technology was being used to facilitate this movement.
Cascarilla was running his own hedge fund throughout the 2008 financial crisis, and it was then that he saw firsthand how antiquated the market structure really was. Processes to settle trades and the daily market hours had been in place for decades, and to Cascarilla, seemed to be outdated in the modern world.
It was all running on inefficient technology that was not keeping up with the times or the rest of the world’s technology. Cascarilla saw how the money was not flowing appropriately from buyers to sellers. And it was difficult to find where collateral and assets were sitting on any given day because things were changing so much.
Observing these shortcomings helped Cascarilla shape early ideas for Paxos. Then, in 2009, he came across the Bitcoin white paper and began to form a vision of how blockchain technology could be used as a better solution for maintaining financial databases and ledgers.
“Since its founding in 2012, Paxos has always sought to enable the movement of assets, starting with the launch of the itBit exchange in Singapore,” according to the company. “In 2015, the New York State Department of Financial Services granted Paxos a limited-purpose trust charter, thus establishing it as the first company approved and regulated to offer crypto products and services.”
From there, the company continued to evolve to where it stands today.
“We take a two-pronged approach of establishing regulatory designations that give us access to the current financial infrastructure and developing innovative products,” according to the company. “This allows us to operate as a gateway between traditional finance and the digital future.”
How Banking Clients Are Benefitting from Paxos’ Products and Services
“Paxos is a regulated financial institution building infrastructure to enable movement between physical and digital assets,” according to the company website. “By seeking the highest forms of regulation and compliance, Paxos has distinguished itself within the blockchain industry and earned the trust of discerning institutional and individual investors.”
The company breaks down its basic functionality into three categories.
“Custody: We hold and safeguard physical and digital assets as a regulated trust; Digitize: We build technology that allows assets to live and move on any blockchain; Mobilize: We enable the movement of assets through an ecosystem of products and services,” according to the website.
Paxos provides cutting-edge technology with bank-level oversight so clients can trade, settle and manage assets with confidence.
The company announced the Paxos Settlement Service last year which allows it to settle U.S. listed equity trades between broker-dealers Credit Suisse and Instinet, LLC. More recently, Paxos added Société Générale as a client as well.
“Launching Paxos Settlement Service under No-Action relief is the first step in our journey to transform post-trade infrastructure in the securities industry. We’ve worked closely with Credit Suisse and Instinet to build a solution that can deliver long-term cost benefits and together we will refine the system in a live environment,” Cascarilla said in a press release. “Our upcoming application for clearing agency registration demonstrates our dedication to modernizing market structure on a large scale.”
Additionally, the Paxos Standard (PAX) combines U.S. Dollar stability with the efficiency of blockchain technology. PAX is now listed on over 150 exchanges, OTC desks, and wallets.
Paxos also automates clients’ post-trade workflow, simplifying the settlement process and reducing errors.
Retail Investors Can Use Paxos Gold as Collateral
The PAX Gold product is one of its most retail investor-friendly products. It allows for physical ownership of gold without having to deal with storage fees or moving the gold around, according to the company.
“PAX Gold (PAXG) is a digital asset. Each token is backed by one fine troy ounce (t oz) of a 400 oz London Good Delivery gold bar, stored in Brink’s vaults,” according to the website. “If you own PAXG, you own the underlying physical gold, held in custody by Paxos Trust Company.”
The company offers PAX Gold at a very fair price to customers who can then redeem the tokens for physical gold, unlike ETF or gold futures contracts when people are trading and dealing with securities. When consumers are buying and trading PAX Gold, they are dealing with physical gold backing.
“Built as an ERC-20 token on the Ethereum blockchain, PAXG can easily be moved or traded anywhere in the world, 24/7,” according to the company. “With low investment minimums, now anyone can own a fraction of an LBMA-accredited London Good Delivery gold bar.”
And it is actually the only gold token that can be redeemed for LBMA-accredited Good Delivery gold bullion bars. It can also be traded against other digital assets on popular crypto exchanges and can be used wherever ERC-20 tokens are supported.
“For additional convenience, smaller amounts can be redeemed through a network of physical gold retailers around the world,” according to the website. “Institutional customers can also redeem for unallocated Loco London Gold. Paxos customers can always redeem for USD at current gold market prices.”
How the Company’s Tech Could Help Speed Economic Recovery from the Coronavirus Pandemic
With the COVID-19 pandemic wreaking havoc on economies around the world, finding innovative ways to help financial markets recover faster is extremely important. Visionary companies like Paxos may be able to play an important role in their recovery through the use of new technologies.
The company believes its offerings, such as its Settlement Service, will play an important role in helping financial markets recover from the effects of the COVID-19 pandemic, according to a Roll Call article.
Cascarilla recently appeared on The Scoop podcast, where he elaborated on how current infrastructures are ill-equipped to weather a health and economic crisis and explained how blockchain offers more security in times like these.