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Bitcoin 101

PAX - What it is and how it works

Cloudbet adds PAX to its currency stable, offering users yet another stablecoin - on top of USDT, USDC, PAXG and DAI - to choose to transact in, proudly continuing its legacy of leading through innovation.

Cloudbet adds PAX to its currency stable

Since its launch in 2013, a pioneering spirit has been, and remains, central to Cloudbet’s ethos and its approach to delivering next-level experiences.

In its constant bid to advance through innovation, Cloudbet now adds the Paxos Standard stablecoin (PAX) to the list of cryptocurrencies that players can choose to play with in its leading crypto sportsbook and casino.

Cloudbet users can now play with bitcoin (BTC), ethereum (ETH), bitcoin cash (BCH), Pax Gold (PAXG), USDT (Tether), USD Coin (USDC) - and now PAX.

This amplifies Cloudbet’s position not only as the leading bitcoin casino and sports betting operator, but also the leading crypto casino and sports betting operator.

What is PAX?

Paxos Standard (PAX) is a fiat-collateralised stablecoin backed 1:1 by US dollar deposits. It is an ERC20 token built on the Ethereum blockchain and issued by the Paxos Trust Company (Paxos) since 2018.

Upon USD deposit, PAX tokens are issued. Upon redemption, PAX tokens are immediately removed from supply so that the PAX is only in existence when the corresponding USD funds are in custody.

According to CoinCodex, PAX has a current market capitalisation of $245 million, with over $224 billion in PAX transacted so far.

Paxos also issues a stablecoin that is pegged to the price of, and collateralised with, gold. In a world first, Cloudbet recently launched Paxos Gold (PAXG) on its site, offering players yet another cryptocurrency alternative that they can choose to utilise.

How safe is PAX?

Paxos is a regulated Trust Company, registered under US banking law by the New York State Department of Financial Services (NYDFS). The token is also built with the security of the Ethereum blockchain network, one of the largest in the world, using a smart contract audited by the industry-leading Nomics Labs and with ongoing monitoring and risk assessments carried out by third-party blockchain intelligence firm, Chainalysis.

Unlike a bank that uses customer funds for its own benefit, Paxos acts as a fiduciary that custodies customer deposits, keeping them segregated. USD deposits are held in FDIC-insured US banks or collateralised by US government treasuries. All client funds are accounted for as customer property with monthly attestation reports.

PAX has witnessed some volatility in maintaining its peg during extreme market conditions, but has always reverted to the mean.

The PAX token, therefore, combines trusted and regulated USD stability with the convenience, efficiency and utility of blockchain technology, while avoiding the inherent friction of the legacy banking system.

How PAX works

Paxos Standard tokens are issued and redeemed transparently by Paxos without the need for a middleman, providing a simple and efficient system, instant redemption 24/7, and no fees for converting or redeeming PAX tokens.

USD deposits are tokenised to PAX by sending USD to the token issuer. The issuer then creates the corresponding amount of PAX via the verifiable PAX Ethereum smart contract, audited by Nomic Labs. The minted PAX is then delivered to the user, fully collateralised against the corresponding USD held in federally insured US bank accounts. When redeemed, the USD is returned, and the PAX burned to remove it from circulation.

This contrasts sharply with the unaudited collateralisation of the largest USD stablecoin, Tether (USDT), for example. You can read more about on USDT, and this issue, elsewhere on the Cloudbet Blog.

Ethereum’s decentralised blockchain-based ledger has become one of the most widely used platforms, with over 100,000 smart-contracts deployed to date. As a result, PAX benefits from the security and availability of the underlying blockchain infrastructure.

As PAX follows the standard ERC20 protocol, it can be sent to or received by anyone with an Ethereum wallet. It has become broadly adopted as a trading pair with other cryptocurrencies on many global exchange platforms, including the Paxos exchange and OTC desk, itBit, used as a proxy for USD. While the issuance and redemption of PAX occurs via Paxos, other transactions in PAX follow the smart contract, relying on the network rather than any middlemen.

PAX use cases

Paxos set out to provide a solution for retail users, traders, exchanges, custodians, institutions, and other participants that need a USD proxy:

  • A means of payment for other blockchain-based assets.
  • To limit exposure to volatility in the cryptocurrency market, without the delays and costs associated with converting to fiat currency.
  • To remove friction from cross-border global transactions, providing for more fluid trade.
  • To provide immediate exchange between fiat and crypto assets, allowing for settlement against fiat outside of traditional banking hours, 24/7.
  • To execute more complex, programmable digital asset transactions with lower volatility, interoperable with the Ethereum network.
  • To earn a yield on PAX savings or access PAX loans from crypto collateral via cefi or defi platforms.
  • An alternative to unregulated stablecoins, allowing for greater trust and utility.

Partnerships

PAX’s immediate settlement and verifiable reserves have seen it gain rapid industry adoption that is now expanding through Paxos’s partnerships.

The Paxos Trust Company goes back to 2012, initially developing the itBit cryptocurrency exchange project, led by co-founder and CEO Charles Cascarilla, who has a background at Bank of America and Goldman Sachs. While the exchange service still exists, now under the Paxos branding, Paxos’s re-focus as a fiduciary and qualified custodian allowed it to provide greater protections for stablecoin users. This new direction has seemingly paid off, with several partnerships including Stablecoin-as-a-Service BUSD and HUSD branded USD whitelabel stablecoins for Binance and Huobi, respectively, adding a combined $890 million valuation to Paxos related stablecoins.

Subsequently, this has led to its high-profile partnership powering PayPal’s new service that brings crypto to millions of its users.

Future implications

Growth in adoption of PAX would aid the quick and efficient settlement of the cash component of digital asset transactions, with traders preferring to hold cash in PAX than fiat for its superior utility and liquidity.

As PAX builds on top of Ethereum, it can take advantage of interoperability with other protocols and become a bridge between legacy banking and rapidly growing defi infrastructure, expanding on existing integration with platforms like Uniswap and Curve Finance.

Paxos also offers Paxos Gold (PAXG), again issued as an ERC20 token on Ethereum and collateralised by corresponding ounces of gold stored in the vaults of Brinks of London, providing a peg against gold prices. In a similar vein, the Paxos Standard could deliver frictionless transactions and fast settlement for additional assets, including other commodities, securities, real estate, art, collectibles, and more.

Having established substantial exchange and OTC desk support, and following partnerships with Binance and PayPal, interest from additional payment providers, financial institutions, multinational corporations seeking lower cross-border fees, and large retailers could develop, fuelling further consumer interest.

Another area of growth could come from consumer payments and stable store-of-value requirements for people outside the US, especially where their own national currencies are volatile, helping to create a common standard of payment.

In terms of the token, PAX currently exists exclusively on the Ethereum blockchain, though Paxos sees potential in a blockchain-agnostic future. That could help it to challenge USDT’s position of dominance as the largest stablecoin, though perhaps this is more likely achieved via one or a combination of its Stablecoin-as-a-Service partner tokens.

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