Stablecoins Backed by Precious Metals — How Do They Work?

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Stablecoin is a cryptocurrency whose value is tied to some valuable asset. This asset could be fiat money, precious metals like gold and silver, oil or almost anything that has tangible value. The price of a stable cryptocurrency is formed in direct proportion to the established asset.
An ideal stablecoin should perform three main functions:
Act as a means of exchange (buying and selling goods and services directly).
Be a saving asset (allowing funds to be saved without loss of value).
Be used as a unit of accounting (comparing the cost of goods and services).
Very early stablecoins like Tether were fiat-pegged, but as time went on, developers began to associate their stablecoins to other assets such as gold. Here are some of the most notable stablecoins backed by precious items.
Paxos Standard Token (PAX) has been actively used by customers of popular crypto exchanges since 2018. It is tied to the United States dollar at 1:1 and stands out among other stablecoins in that it was approved by the New York State Department of Financial Services (NYDFS). The coin uses Ethereum smart contract.
In March 2019, the startup announced that it was preparing to issue a new digital token, backed by precious metals and stocks. Subsequently, in early September, Paxos announced the launch of a stablecoin, the price of which is secured by gold. PAX Gold (PAXG), it is.
Each PAXG token gives users ownership of one ounce of gold held at Brink’s London vault. The token can be redeemed in exchange for a physical gold bar at partner organizations, for example, New York Bullion Exchanges.
Furthermore, users can convert tokens into fiat currency or gold and vice versa. In addition, information on the specific gold bar to which a PAXG is attached is available to token holders. They can see the serial number, brand code, weight and thickness of the ingot.
Paxos charges a fee for transactions within the blockchain, as well as for the creation and redemption of a token. However, no commission is charged for the storage of gold to which PAXG is attached.


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