On the 10th of August 2020, Maggie Ng, our SVP and Head of Marketing, had a Live AMA session with Walter Hessert, Head of Strategy at Paxos.
Maggie - Hello, everyone, thanks for joining the Paxos and Crypto.com live video AMA today. It's me again, Maggie. I'm the Head of Marketing at Crypto.com. I'll be hosting today's live AMA.
We are actually going to host our Syndicate event of PAX Gold tomorrow, so the timing is just right. Joining us today is Walter Hessert, the Head of Strategy at Paxos. We have been collecting a lot of questions that have been submitted by our communities. And today, Walter is going to respond to about 20 of them that we have handpicked.
If your questions have been featured in this Q&A section, that means you have won a share of a PAX Gold prize pool, and we'll be distributing this directly to your Crypto.com account. Now, let's give a warm welcome to Walter.
Walter Hessert - Thanks, Maggie. Thanks, everyone. I’m Walter Hessert. I lead strategy and partnerships at Paxos, where we are building financial market infrastructure that provides a gateway between traditional and digital assets. It's great to join everyone today.
1. Why should I buy tokenized gold?
Walter Hessert - First, I think that gold has historically been an excellent hedge against inflation, and because its price tends to rise when the cost of living increases, you might also buy gold as a hedge against your local currency. If you're going to buy gold, you can buy it in a few ways. So first, you can buy physical gold and store it yourself, but it's difficult to store and transfer. Alternatively, you can buy tradable gold, which is very popular, like an ETF. And that's easy to store, transfer and trade.
But conversely, you don't actually own the underlying gold itself. With PAX Gold and tokenized gold. Each token you own is backed with an ounce of gold sitting in a London vault. So with PAX Gold, you actually own the gold — you own the underlying because we've tokenized it into an ERC-20 token, you are able to send it anywhere in the world instantly, virtually for free, giving you arguably the most tradable gold that you could have.
2. How would you describe the difference between PAX Gold compared to similar projects?
Hmm, good question. A major difference between PAXG and other tokenized gold projects is regulation and oversight and this is core to Paxos itself. Paxos is a New York Trust Company and our regulator, the New York Department of Financial Services has approved the issuance of PAX Gold. So that level of regulatory oversight guarantees that our gold reserves match PAX Gold one to one at all times, which other gold products do not offer.
Also, PAXG is backed by the highest quality gold in the world, London gold. It's, if you will, the gold standard for all physical gold in the world. Other tokens are not backed by London gold. And then lastly, PAXG is just more liquid than other gold projects like DGX today, which is important for when you want to sell or trade your gold token to have that liquidity. Just as a point of comparison, PAXG is six to seven times the market cap of DGX today.
3. Recently, a report from Bloomberg quoted a strategist at JP Morgan, saying investors generally are interested in alternative assets, but the older investors are buying gold while the younger ones go towards Bitcoin, do you agree with this trend? And do you see this as a threat or as an opportunity for Paxos, particularly for PAX Gold?
Walter Hessert - Yeah, I think this makes sense. Younger, more technically savvy investors will understand the value of Bitcoin in a way that is less obvious for older investors. And I suspect, for example, the Crypto.com user base is significantly younger than Schwab, for example.
Young people will continue to watch the value of gold rise as people hedge against their local currencies and other asset classes. And since they natively understand crypto and blockchain technology, they'll look to PAX Gold as the logical way to buy gold and get exposure in that asset class. Older people on the other hand will get easier access to PAX gold in the next couple of years. And this is going to happen as the largest online brokerages begin to add support for digital assets and older people will be able to buy PAX Gold tokens as easily as they can buy a share of a gold ETF for a share of Apple on platforms that they recognize and are familiar with. Since older people have most of the wealth, this is a real opportunity for Paxos, PAX Gold, and digital assets in general, frankly. With time, education, and improved distribution and scale, we will continue to drive new adoption for PAX Gold, and for market penetration, we'll be thinking about both of these groups.
4. If you now own tokens of PAX Gold, you actually own the underlying gold, meaning that you can actually redeem it. But currently, the minimum amount for redemption is still quite high (around 430 PAXG). Based on the current prices, this is about $800,000. Is there any future plan to decrease this minimum?
Walter Hessert - Yeah, absolutely. And like you said, this is really about Paxos' mission and it's foundation, which is creating a more open and accessible financial system, and that applies to PAX Gold as well. We think we've taken the first steps to get there. Today, PAX Gold reserves are held in vaults, in 400 ounce London gold delivery bars. And if you have enough to claim a full bar, that you can redeem those tokens for physical gold directly from Paxos, through one of our vault partners.
We're also building a global redemption network that makes it easy to redeem, as you said smaller amounts of PAX Gold for physical gold. For example, you could get a one-ounce American Gold Eagle coin for one token perhaps. Today that's possible through our retail partner at alphabullion.com, to convert those smaller amounts of PAX Gold into physical gold. And like I said, we're really investing in building out that global network and we're doing it on a market by market basis. So going on the journey with our customers or partners like Crypto.com to see where the demand is, and we build out that network to provide the easiest, most accessible redemption channels.
5. What is happening behind the scenes at Paxos to take advantage of the huge spike in the interest of gold and the price of gold? And how are you making sure investors would buy PAX Gold instead of going through more traditional forms of investing in gold?
Walter Hessert - To focus on how we are taking advantage of this moment — because it certainly is Gold's moment right now. We think that it will continue to be given the global economic climate. On one hand, we're working with our ecosystem partners like Crypto.com to promote and educate around PAX Gold. We'll also soon be announcing new major exchanges to list PAX Gold, which will create more access, and both of these increased Pax Gold exposure and help us to capture some of this near term demand for gold.
Additionally, behind the scenes, we're really making major strides on the distribution side of PAX Gold. Paxos, again, is an infrastructure company. We have large companies, trading institutions, fintechs like Revolut and global banks, building on top of the Paxos platform to offer digital assets and tokenization to their customers. Through platforms like these, customers will make it possible for millions of end-users to easily trade PAX Gold, and we think that this is an important foundation and that's where we're making really exciting advancements today.
6. Can you explain to us a little bit more about the tokenomics of PAX Gold?
Walter Hessert - So there's a couple of buckets of fees one's creation-redemption, the other one is on-chain transaction fees. So first on the creation-redemption, we charge to create and redeem on the Paxos.com platform. So this mostly applies to institutions like partners and market makers, these fees do not apply when trading PAX Gold on an exchange or buying and selling anywhere outside the Paxos as well. Second, we charge an on-chain transaction fee. So whenever PAXG tokens are sent on the Ethereum network, Paxos charges a small two bit fee of the amount of PAXG sent on the blockchain. So, I'll just give an example of that. If you want to send 10 PAXG tokens from one Ethereum address to another, and you want to ensure that the receiver gets at least 10 PAXG after fees, you would send at least 10.002 PAXG to cover the costs of the on-chain transaction fee. And if you initiated a transfer of 10 PAXG the receiver would get 9.998 PAXG after the fees. Paxos does not charge any fees for our gold storage to the customers.
7. The underlying gold is a 1:1 representation of the PAX Gold supply. How is this process being audited at the moment?
Walter Hessert - So first off, being issued by Paxos Trust Company. It is a regulated token. The issuance itself is actually overseen by our regulators and they spend several weeks a year in our office auditing Paxos. We have a constant dialogue with regulators at every level. Additionally, the Trust Company engages with them, which is a nationally top-ranked auditing firm for independently verifying at the end of each month that the entire supply of PAX Gold tokens corresponds one to one with ounces of gold held in our vaults. And then each attestation report is made available for customers.
8. Do you think that gold-backed tokens are something that will stick around, or even take over other digital assets like Bitcoin?
Walter Hessert - Well, yes, tokenized gold has so many advantages, and we believe it will become ultimately the prevailing way to own or trade gold. In fact, we believe that most of the $600 trillion of financial assets in the world will similarly end up on the blockchain. And so yes, absolutely, we believe they'll stick around. Will it overtake natively digital assets like Bitcoin? It's believed there's about $10 trillion worth of gold in the world and there's just $200 billion of Bitcoin today. So if it ends up being a universal ledger upgrade, so to speak to all gold then you could argue it would overtake Bitcoin fairly early, but on one hand, that requires a lot of time and at the same time I'm very bullish on Bitcoin so I'd say unlikely.
9. Are you planning on having PAX Gold included in some of the DeFi products or projects? Or is there anything that is already being discussed already at the moment?
Walter Hessert - I can say the Maker DAO community recently voted to include PAX Gold as collateral for multi collateral DAI. So yes, I think we'll see PAX Gold begin to grow in the DeFi world significantly. We're really excited about the space and hope PAX Gold users will encourage adoption in the various DeFi communities that they're involved in.
10. Can you break down the design behind Paxos Standard token?
Walter Hessert - Sure. Paxos Standard is a fully regulated US dollar stablecoin. Similar to PAX Gold being backed one to one with an ounce of gold in Paxos trust, Paxos Standard is backed one to one with US dollars by Paxos Trust.
11. How do different stablecoins actually differ from each other? Assuming that you think that PAX is the best among all of them, why is this token the best compared to the other competitors offering stablecoins?
Walter Hessert - Sure, but I think we need to think about what the use cases are before you just say “best”. Of course, I think that we've structured Paxos Standard and our other Paxos powered stablecoins with a long term view of the market, the same way we built our company. And so in that long term, I absolutely think we've approached it the right way and structured it the best way possible.
Unlike other stablecoins, Paxos stablecoins are approved by our regulator. So that means that customers benefit from the highest level of oversight and protection from the banking regulator in New York, the New York Department of Financial Services, or the NYDFS. So when we talk about use cases, when we talk about “best”, that distinction, which I just mentioned, is really important as stablecoins start to be used in more ways beyond crypto trading. The institutions that will be processing or accepting state points for payments as an example are going to look for a higher level of regulation that might be important to a crypto trader. And those are the use cases that we've had in mind as we built this infrastructure to power stablecoins.
12. How far off do you think that we are from putting more practical usage on stablecoins?
Walter Hessert - Well, I think that Libra last year, obviously, made a big splash. And in my view, they totally changed the conversation. They forced all types of companies, especially the largest companies in the world, to look at stablecoin technology and say, is this something we can use for our business? Is there a solution here that can make our business or our products more efficient for our customers? And some of them said no, some of them took a hard look and said yes, there is. And so what I would say is, on the partnership side, we have seen really engaged parties that probably pre-Libra weren't paying much attention to stablecoins. Now they've figured out ways how a stablecoin can be used in their own businesses. And these solutions are being built now. So I'm super bullish on stablecoins moving into mainstream use cases. I would say that in 2021, by the end of 2021. We'll see some exciting developments.
13. Paxos is regulated by the DFSNY, so is there any room for Paxos to develop stablecoins that are tied to other currencies? Like euros for example, or actually, are you planning on doing that already?
Walter Hessert - Absolutely. So although our primary regulator is the NYDFS, we have dialogues with other regulators in the US as well as other global regulators. And that's really paramount to the way Paxos operates is to have that open dialogue and work together with policymakers and regulators. Still, we see the highest demand for US dollar stablecoins, and there's a lot of demand there, but we'll likely launch other fiat-back stablecoins eventually. It will depend on customer demand.
14. Can you tell us a little bit about Paxos Crypto Brokerage?
Walter Hessert - Sure. So some major companies like Square and Robinhood have offered their customers in the past couple of years the ability to trade and invest in Bitcoin and other cryptocurrencies within their apps and their sites, and users want access to these products, but they want to do so in our view, in an easy to use and trustworthy way. So it makes a lot of sense to create that access within the apps and the products that people already use and trust. Paxos Crypto Brokerage is an enterprise solution that we have built for businesses to power that crypto brokerage functionality for their users. And by integrating with our platform, through our simple APIs, customers can control the user experience while Paxos handles all of that regulatory and technical complexity. As an example, you may have seen recently we announced our launch with Revolut in the US market.
15. What are the difficulties that Paxos is facing right now, while the crypto and blockchain market is still very young? Will it still take a long time to grow?
Walter Hessert - I agree with you, a long time to grow. But it's also developing right now in parallel without any question and as I said before, Libra was a major factor among others in drawing large non-crypto institutions into the space today. For example, Credit Suisse as a client of the Paxos security settlement business, Major fintechs, like Revolut are using our platform. So these are really large businesses using the Paxos platform for different solutions today. I would say one of the challenges in these early days of building marketplaces structure, and these are definitely still early days, is choosing the right areas to invest in. And then the other is talent. We need more great designers, product managers, and developers moving into and choosing the blockchain industry.
16. Technological complexity and cumbersome regulatory frameworks sometimes make it more costly in terms of time and capital to deliver crypto products. How do you think that Paxos is leveraging its strengths to help businesses solve these problems?
Walter Hessert - Good question. That's really our sweet spot at Paxos. We've invested many, many years, and tens of millions of dollars in building out our platform and it has a couple of components. One is our regulatory stack, as we call it, and the other is our technology stack. And this allows us to provide a turnkey solution for our partners, whether it's a stablecoin or tokenized Gold, so they can worry about their customers in the user experience and lead those complexities technology and regulatory to Paxos.
17. With the interest in US Dollar backed stablecoins rising, where do you see Paxos having the biggest potential? Would you be considering fiat currencies and the deposit and withdrawal of local currencies such as Chinese yuan or Australian dollars?
Walter Hessert - Yes, let's think of that slightly differently. On the one hand, like I said, we are definitely looking at other fiat-backed stablecoins. That will eventually happen when the demand is there. On the side of what we provide for on-ramps and off-ramps, the answer is yes, we have large international partners like Binance, Huobi, and Crypto.com, and we're working on expanding our Fiat support so they can better serve their end-users and local markets.
18. Paxos’ mission is to modernize finance by mobilizing assets at the speed of the Internet. What is the extent to which you believe you have reached this going and what is the next leap?
Walter Hessert - That is our mission. And we are building the financial marketing infrastructure to make that possible. And today with that infrastructure, we've tokenized billions of dollars of assets in a safe and trustworthy way. So I think that that's a huge accomplishment along the journey to achieving that mission. And in the next leap, I'd say we'll be working with partners to expand the use cases, which will include more traditional access for investing in PAX Gold and mainstream payments for stablecoins and other cryptos.
19. How did Paxos manage to continue growing, as many projects truly just disappeared during the hot market conditions after 2017. What do you think is the strategy that leads to success right now, and what have you done mainly differently compared to a lot of the projects that no longer exist?
Walter Hessert - First off, survival is a major component of every startup. So there's definitely a survival aspect there, that might be the appropriate wording. But Paxos was started with the belief that blockchain technology can be used to fundamentally change the financial system. We recognize that is a monumental job that takes many years and lots of resources. And our founder, Charles Cascarilla created the company with that in mind. So everything from our products to our culture of Paxos, to our funding was established with that in mind, we're solving a really big problem and it takes a long time. And so, I would say that as a result, we as a company are less impacted by the surface ups and downs of crypto and we've been able to survive multiple crypto winters because of that.
20. If there was one thing you would change about Paxos, what would that be and why?
Walter Hessert - I would wish everyone knew about Paxos and all of the momentum that we have as a company. So it would be easier to hire terrific new team members. We're trying to double our team right now from 110 to 220 people. And that just takes a lot of work. And it's particularly hard without a recognizable brand. And so that would be one thing that would be a nice tailwind.
Maggie - That's all folks. That's all of the 20 questions. Thank you very much for your time and insights and for a lot of the technical details on your products. I’d like to give an even bigger thanks to our community. We announced this AMA a little bit later than usual. But we still managed to have collected a lot of amazing questions that Walter just addressed. Before we close Walter, is there anything you would like to share with the Crypto.com community?
Walter Hessert - I'd just like to say thanks to everyone in the community for your support of Paxos and Paxos products and I'd like to remind everyone that PAX gold is really an unbelievable innovation, combining real gold ownership with the blockchain within our trust status. The product is about a little over nine months old, and already has tens of millions of dollars being traded and tokenized. And so it's the early innings. We're really really excited about where this is going to go and excited to have ecosystem partners like Crypto.com that are supporting PAXG.
Maggie - And if you're interested after this AMA, don't forget to check out the upcoming PAXG Syndicate event taking place on August 11, 6 am UTC. Again, just to repeat, if your questions have been selected for today's AMA, that means you have won a share of the PAX Gold prize pool and you will be contacted by us soon and rewards will be distributed directly to your Crypto.com App account. In the meantime, please make sure to follow Paxos on Twitter @PaxosGlobal and follow us to stay informed about upcoming events and AMAs through the official Twitter account and Telegram channels. Thanks again, Walter. Until next time!
Walter Hessert - Thanks!