PAX Gold

PAX Gold: Physical Bullion Meets Blockchain Infrastructure

PAX Gold (PAXG) ranks among the largest tokenized gold instruments in cryptocurrency markets, with a market capitalization approaching $1.9 billion as of January 2026. Each token represents direct ownership of one fine troy ounce of London Good Delivery gold stored in LBMA-accredited vaults operated by Brink's in London.

The asset trades near $4,850, tracking the spot gold price that surged past $4,500 per ounce in late 2025 amid geopolitical tensions and institutional demand for safe-haven exposure.

PAXG addresses a persistent friction in gold investment: the commodity's indivisibility, storage costs, and settlement delays. Where physical bullion requires minimum purchases of 400-ounce bars worth over $1.9 million, PAXG enables fractional ownership starting at 0.01 troy ounces—roughly $48 at current prices.

The token's significance extends beyond mere digitization. PAXG represents the intersection of real-world asset tokenization, regulatory compliance, and DeFi composability—a template for how traditional assets might migrate onto blockchain rails without sacrificing institutional-grade custody standards.

From Wall Street Crisis to Tokenized Gold

Paxos Trust Company emerged from the 2008 financial crisis, when co-founders Charles Cascarilla and Rich Teo witnessed clearing and settlement infrastructure contribute to systemic failures across Wall Street. Both had backgrounds in institutional finance—Cascarilla at Goldman Sachs and Bank of America, Teo in operations at various investment firms—and they founded the itBit bitcoin exchange in 2012 with ambitions extending far beyond cryptocurrency trading.

The company rebranded to Paxos Trust Company in 2015 after receiving the first limited-purpose trust charter for digital assets from the New York State Department of Financial Services.

This regulatory milestone positioned Paxos as a fiduciary custodian rather than merely a technology company—a distinction that would prove crucial for institutional adoption.

PAXG launched in September 2019, arriving as Paxos's second major tokenization project following its Paxos Standard stablecoin. The timing coincided with growing institutional interest in cryptocurrency custody and mounting concerns about negative interest rates pushing capital toward gold.

The design philosophy borrowed heavily from stablecoin architecture—centralized issuance, regulated custody, audited reserves—while applying those principles to a commodity rather than fiat currency.

Paxos secured additional regulatory approvals over subsequent years, including Major Payment Institution licensing from Singapore's Monetary Authority in 2022 and OCC national trust oversight in December 2025.

Ethereum-Based Architecture and Custody Mechanics

PAXG operates as an ERC-20 token on Ethereum, inheriting the network's security model following its transition to proof-of-stake consensus.

The smart contract employs OpenZeppelin's AdminUpgradeabilityProxy pattern, allowing Paxos to upgrade contract logic while maintaining the same token address and user balances—a design choice that prioritizes flexibility but concentrates upgrade authority with the issuer.

The contract includes several centralized controls typical of regulated tokens. A single supplyController address manages minting and burning based on gold movements into and out of reserves. Paxos retains pause functionality for critical security threats, asset protection capabilities for regulatory compliance, and the ability to freeze specific addresses when legally required.

Physical custody follows LBMA standards for investment-grade bullion. The underlying gold consists of 400-ounce London Good Delivery bars stored in Brink's vaults, each with unique serial numbers traceable to specific PAXG holdings. Token holders can verify their allocated gold through a lookup tool on the Paxos website by entering their Ethereum wallet address.

The minting process begins when users purchase PAXG through the Paxos platform using fiat or cryptocurrency.

Paxos acquires corresponding physical gold through LBMA-accredited dealers, deposits it in secure vaults, and mints tokens on-chain in a 1:1 ratio.

Redemption works in reverse: burning tokens releases claims against the underlying gold, redeemable as physical bars for institutional holders accumulating 430+ PAXG, as smaller gold products through partner retailers, or as USD at current market prices.

Supply Dynamics and Fee Structure

PAXG maintains no fixed maximum supply—total tokens in circulation fluctuate based on creation and redemption activity, directly mirroring the quantity of gold held in Paxos vaults.

As of January 2026, approximately 392,000 PAXG tokens circulate, representing over 12 metric tons of allocated bullion.

The supply mechanics create a tight relationship between token price and spot gold. When PAXG trades at a premium, arbitrageurs find incentive to create new tokens; when it trades at a discount, redemptions reduce supply and restore parity.

This mechanism has maintained PAXG's peg through multiple market cycles without any significant deviations from the underlying gold price.

Paxos charges tiered fees for creation and redemption ranging from 0.02% to 1% depending on transaction size, with volume-based discounts for larger operations.

The company eliminated on-chain transfer fees in August 2025, previously set at 0.02% per transaction, leaving only standard Ethereum gas costs for token movements.

Notably, Paxos charges no ongoing storage or custody fees—a significant advantage over gold ETFs that typically extract 0.25% to 0.40% annually.

This cost structure positions PAXG competitively against traditional gold investment products for long-term holders.

Token divisibility extends to 18 decimal places, though Paxos sets the minimum purchase at 0.01 PAXG on its platform. This fractional accessibility democratizes gold ownership beyond the institutional minimums that have historically restricted direct bullion investment.

DeFi Integration and Institutional Adoption

PAXG has found significant traction in decentralized finance protocols, transforming gold from a traditionally non-yielding asset into productive capital. Lending platforms including Aave and Compound accept PAXG as collateral, allowing holders to borrow against their gold positions or earn interest by supplying liquidity.

DeFi integration enables yields ranging from 3% to 5% annually on PAXG deposits—modest by cryptocurrency standards but remarkable for an asset class that has historically generated no income.

Liquidity providers can deposit PAXG alongside stablecoins in automated market maker pools, earning trading fees while maintaining gold exposure.

Centralized exchange support spans major platforms including Binance, Coinbase, and Kraken, with daily trading volumes routinely exceeding $200 million during periods of heightened gold volatility.

The token's 24-hour trading volume hit record levels in late 2025 as gold prices surged amid geopolitical uncertainty.

Institutional adoption has expanded steadily. Bitcoin Suisse added PAXG trading and custody in September 2025, citing demand from clients seeking regulated exposure to tokenized commodities. Paxos's broader enterprise partnerships—powering PayPal's cryptocurrency services and working with Mastercard, Mercado Libre, and Nubank—signal institutional comfort with the company's infrastructure.

On-chain metrics show over 69,000 wallet addresses holding PAXG, with more than 640,000 on-chain transfers executed since launch.

The holder base grew 25% during 2025, though distribution remains somewhat concentrated—the top 10 holders control approximately 40% of circulating supply, a concentration level that raises questions about whale influence on market dynamics.

Regulatory Framework and Compliance Controversies

PAXG operates under one of the most comprehensive regulatory frameworks in tokenized assets. Paxos Trust Company maintains oversight from the Office of the Comptroller of the Currency at the federal level, the New York State Department of Financial Services for its trust charter, Singapore's MAS for Asian operations, and Abu Dhabi's FSRA for Gulf region activities.

This multi-jurisdictional licensing requires strict compliance protocols: monthly reserve attestations by independent auditors (KPMG LLP since February 2025), segregated customer accounts, capital requirements, and comprehensive anti-money laundering programs.

However, Paxos's compliance record carries significant blemishes. In August 2025, NYDFS announced a $48.5 million settlement over compliance failures tied to Paxos's former partnership with Binance for the BUSD stablecoin.

The investigation revealed that Paxos operated deficient KYC programs, failed to detect $1.6 billion in transactions involving illicit actors flowing through Binance between 2017 and 2022, and did not adequately escalate red flags to senior management.

Paxos characterized these issues as "historical" and "fully remediated," noting no customer harm occurred. The company emphasized successfully winding down $16 billion in BUSD market capitalization without the token ever losing its dollar peg—a demonstration of operational capability even under regulatory pressure.

Nonetheless, the settlement raised questions about compliance culture at the firm and underscored that third-party partnership risk extends beyond in-house systems. While the issues involved BUSD rather than PAXG directly, they reflect on the organization's broader risk management practices.

Competitive Threats and Structural Limitations

PAXG faces direct competition from Tether Gold (XAUt), which has grown to command the larger share of the tokenized gold market with approximately $2.4 billion in market capitalization versus PAXG's $1.8 billion.

Together, the two tokens control roughly 95% of the tokenized gold sector, valued at over $4.3 billion.

Tether Gold (XAUt) offers different trade-offs: Swiss vault custody rather than London, lower redemption thresholds (50 ounces versus PAXG's 430), and Tether's aggressive multi-chain expansion through its XAUt0 omnichain initiative using LayerZero cross-chain infrastructure. PAXG counters with stronger U.S. regulatory standing, deeper DeFi integration on Ethereum, and bar-specific transparency through its allocation lookup tool.

The centralization inherent in PAXG's design presents unavoidable risks.

Token holders must trust Paxos's custody arrangements, audit processes, and operational integrity—they cannot independently verify gold reserves beyond attestation reports. The upgradeable smart contract means Paxos could theoretically modify token behavior, though doing so would invite regulatory scrutiny and destroy market confidence.

Physical gold's logistical constraints also introduce tail risks. Severe banking crises could complicate fiat on-ramps for PAXG transactions; geopolitical disruptions could theoretically affect London vault access. These scenarios remain unlikely but illustrate that blockchain settlement does not eliminate all counterparty dependencies.

Ethereum (ETH) gas costs, while reduced by Paxos's fee elimination, still affect small transactions during network congestion. Unlike XAUt's multi-chain approach, PAXG remains primarily an Ethereum asset, limiting its reach to chains where bridging solutions introduce additional trust assumptions.

The Path Forward for Tokenized Bullion

PAXG's trajectory depends heavily on factors beyond its immediate control: gold's macro performance, regulatory developments around tokenized securities and commodities, and whether traditional finance adopts blockchain rails for precious metals settlement.

Gold rose approximately 67% during 2025, with tokenized gold outperforming both physical bullion and most gold ETFs as investors sought on-chain exposure to safe-haven assets amid currency debasement concerns.

Central banks accumulated over 1,000 tonnes of gold in 2024, signaling sustained institutional appetite that could eventually translate to tokenized formats.

Paxos's OCC national trust charter positions the company favorably under emerging U.S. stablecoin legislation. The GENIUS Act's designation of certain stablecoin issuers as financial institutions subject to Bank Secrecy Act requirements aligns with Paxos's existing compliance infrastructure. If tokenized commodities receive similar regulatory clarity, PAXG's first-mover advantage and institutional relationships could prove decisive.

Yet the tokenized gold market remains minuscule relative to gold's $30 trillion total value. Meaningful growth requires converting traditional gold investors skeptical of blockchain, building custody solutions acceptable to wealth managers, and potentially integrating PAXG into retirement account frameworks where physical gold already has established precedents.

PAXG represents a competent execution of a straightforward premise: making gold tradeable with blockchain efficiency while preserving regulated custody standards. Its continued relevance hinges less on technical innovation than on maintaining the trust infrastructure that distinguishes it from less regulated alternatives—and demonstrating that the compliance failures exposed in its Binance partnership were genuinely aberrations rather than symptoms of deeper organizational problems.