Paxos CEO: We are a Gateway to Your Assets and the Blockchain Environment

22 Mar, 2019 16:14
source: source: 奇点财经 Singularity Financial

Background Information

September 2018, New York blockchain startup Paxos Trust Company announced, with permission from the New York Department of Financial Services (NYDFS), it had created a USD-pegged cryptocurrency stablecoin that would provide traders and institutions with a “regulated” alternative to Tether (USDT), which was frequently the subject of controversy around this company’s viability. Throughout the year 2018, Tether consistently demonstrated a daily trading volume of over $3 billion, which is twice as much as that of Ethereum, the second most valuable cryptocurrency in the world.

Research firm Diar stated in one of its analyses on December 10th, 2018, that “Concerns around Tether escalated last month which highlights a key-factor in users switching over to a different pegged cryptocurrency.” Four major stablecoins to date — USDC, True USD (TUSD), Paxos Standard (PAX) and the Gemini dollar (GUSD) — have broken the $5 billion mark in on-chain transactions within the three-month period. “And a whopping 1032% increase in on-chain transactions took place in November vs. September breaching the $2.3 billion mark at the close of October 2018.”

Apparently, the next wave of “regulated” USD-backed stablecoins have begun to make their way onto high-volume cryptocurrency exchanges, and early indications suggest that traders may trust them more than Tether (USDT).

Paxos is on the Fast Track of Rolling out More Products and Services

Paxos, a blockchain trust company that currently offers a USD backed stablecoin, is planning on launching another coin this summer, one that will be backed by one or more precious metals, plausibly gold.

In a recent interview with CEO Chad Cascarilla, Paxos revealed more details to Singularity Financial( He stated, “We are very active in the precious metals’ market already…We think putting commodities into a blockchain is very powerful…we have done that for the US Dollar…we think the gold market itself has a lot of difficulties that blockchain is able to address, around fungibility, around transportability, around cost…it is not just gold, it is all kinds of commodities that over time, will end up in a blockchain environment.”

What are the Differences between a NYDFS Charter and a BitLicense?

Currently, Gemini and Paxos have each received NYDFS charters, while Circle has received the state’s coveted “BitLicense”. A New York State trust company charter is a higher level of license than a virtual currency license (or “bitlicense”), a money transmitter license, or registering with FinCEN as a Money Services Business (MSB). It is harder to get, more closely regulated, and more regularly supervised.

Being a trust company, Paxos is regulated under New York State banking law, which means, Paxos is chartered by the state of New York in order to operate as a financial institution. “It is very difficult to achieve…and it took us many years to get approved.” said Chad. “It gives us special authority to act as a custodian, a fiduciary, an escrow agent, to be able to hold client funds in a safer way.”

BitLicense is a very different product, it is used for money transmission license when conducting virtual currency activities. It is issued by the New York State Department of Financial Services (NYSDFS) and the regulations are limited to activities involving the state of New York or a New York resident. Chartered entities do not require an explicit BitLicense, but may instead proceed with virtual currency activities via limited purpose trust charters approved by the NYDFS.

As a chartered trust company, Paxos cannot form a company unless the State authorizes it to do so.  As a result, it has 4-6 weeks of exemption each year from NYSDFS in order for the State to come in and examine the company. It makes sure Paxos meets capital requirements, capital filing on a quarterly basis, independent board of directors and more. “We have three different auditors: a financial auditor, internal auditor, and stablecoin auditor.” said Chad. “So much oversight is brought to bear.”

How do You See Yourself Differently from JPM Coin?

Chad stated, “The product they are talking about launching has not launched yet. We are on Ethereum, a public open blockchain. Frankly we are happy to create tokens on any blockchains if there is market demand.” What JP Morgan is doing is very positive to the industry, but their product is built on an Ethereum Enterprise private chain called Quorum. “So it is for internal use only…and I suspect that it is years away before they are open to the public.”

“The opportunity is $600 trillion of assets around the world, of that is $5 trillion dollars in US Cash. We are not going to have 100% market share, but we are able to be there first and we have learned a lot to establish our credibility to our customers.”

Do You See the Possibility of Having Stablecoins Being Regulated as Securities?

We spent a lot of time on this, we went to get a variety of legal opinions and talked to the US Securities and Exchange Commision. We believe that stablescoins are definitely not securities. According to the Howey test in the US, we do not fall into all four principles…The easiest, most simple way to explain this, there’s no potential for price appreciation,” Chad said.

What do You See Paxos as In the Long Run?

We want our customers to come in, fundamentally to safe-keep their products. We safe-keep crypto assets, dollars and other currencies, commodities, and securities. We are not just a crypto player, we can deal with any type of asset products. We act as a gateway to hold these assets and put them into a blockchain environment.”

Performing an Audit for Stablecoins is Simply Relying on a Third Party to Attest to Whether an Assertion is Accurate?

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