Cryptocurrency has evolved significantly from a topic discussed mainly by techno-enthusiasts into a versatile tool for trading and savings. This transformation is not surprising, given that cryptocurrency transactions offer numerous advantages over traditional bank transactions. Firstly, unlike standard bank transfers, which may take up to five business days, cryptocurrency transactions are swiftly completed within a few minutes and can be conducted globally. Secondly, utilizing cryptocurrency as a payment method and a means of storing savings ensures anonymity.
The absence of centralization further guarantees that third parties cannot interfere with transactions by blocking funds or requesting personal information through identity verification for transfers or access to one's own funds. Thirdly, the returns from cryptocurrency investments and stock market speculation often surpass even the highest interest rates offered by traditional bank savings accounts.
However, despite these advantages, cryptocurrency is not without drawbacks, with volatility being a prominent issue. Decentralized cryptocurrencies like Bitcoin or Ethereum lack backing and derive their value solely from user interest and faith in rate increases. The fluctuating nature of cryptocurrencies, illustrated by the roller coaster ride of Bitcoin, has brought both joy to early adopters and disappointment to those who invested during peak hype.
The volatility and instability inherent in cryptocurrencies hinder them from completely replacing fiat currencies. While proponents of traditional investment and trading methods stick to familiar tools, cryptocurrency enthusiasts have found a solution to address volatility. They have introduced stablecoins, which are backed by tangible values like the United States dollar, Chinese yuan, Japanese yen, and other various currencies, as well as gold, oil, and even stocks. Stablecoins hold a distinct position in the cryptocurrency landscape, offering a different concept from virtual money.
Cryptocurrencies serve various purposes, and stablecoins specifically attract users who seek to avoid the volatility associated with cryptocurrencies, including sports betting enthusiasts and individuals looking to digitally store their savings. Notable stablecoins include Tether (USDT), USD Coin (USDC), Binance USD (BUSD), Gemini Dollar (GUSD), and Pax Dollar (USDP). In this article we will mainly focus on Pax Dollar and its creation, advantages, and drawbacks.
What is Paxos Dollar Stablecoin?
Pax Dollar, also known as the USDP Token, represents a token within the Paxos platform, developed on Ethereum blockchain technology (ERC-20 protocol) in 2018. The conventional Paxos token is fully supported at a 1:1 ratio by the USDP token, issued by Paxos Trust Company and, importantly, is sanctioned and overseen by the New York State Department of Financial Services.
The developer strives to position itself as the inaugural trust company regulated by U.S. government agencies, contending for recognition as the premier state-approved cryptocurrency, in tandem with Gemini Dollar (GUSD), registered by Gemini Trust Company on the same day. Leveraging its blockchain expertise, Paxos crafts an optimal settlement solution that streamlines payment transactions among network users.
Similar to other stablecoins like USDT, PAX aims to amalgamate the stability and dependability of the U.S. dollar with the advantages of digital currency. Specifically, its objective is to facilitate instant, commission-free transfers over the Internet to anyone globally, at any time. This currency is accessible for purchase on any major cryptocurrency market, enabling users to acquire coins conveniently at any time, including right now, on various exchange platforms.
What Sets Pax Dollar Apart?
Pax Dollar stands out as an excellent choice, highlighting a host of advantages that make it unique among other cryptocurrencies and stablecoins backed by fiat assets.
- Stability: Pax Dollar boasts unwavering stability. Crafted as a stablecoin, PAX is designed to maintain a consistent value, firmly pegged at a 1:1 ratio to the US dollar. Essentially, this means that one Pax Dollar consistently reflects the value of one US dollar. This stability is a significant advantage, especially in the volatile cryptocurrency market, where sudden price fluctuations are common, particularly in currencies like Bitcoin or Ethereum. Beyond its ability to weather market volatility, the steadfast value of PAX makes it an optimal choice for transactions. Users can trust in the reliability of their funds' value, instilling confidence in financial dealings. This stability further positions Pax Dollar as an appealing option for those entering the cryptocurrency realm, offering a way to navigate the market with reduced exposure to the heightened volatility often associated with other digital currencies.
- Regulation: Paxos is officially registered with the New York State Department of Financial Services, creating a sturdy regulatory foundation that ensures the responsible issuance of Pax Dollars. Paxos dollar stablecoin is brought into existence only when new U.S. dollars are introduced into the Paxos system. The creation of a new PAX token occurs when an individual sends one U.S. dollar to Paxos, which is subsequently deposited into a regulated Paxos bank account. PAX tokens are not generated or available before their purchase, meaning that the total supply of PAX is entirely contingent on the demand for the token.
- Auditing: Withum, a distinguished U.S. accounting firm, diligently conducts thorough audits for all of Paxos' bank accounts, guaranteeing a transparent and solid financial standing.
-Instant Purchase and Redemption: What sets Paxos Dollar apart from other stablecoins is its remarkable efficiency in the process of acquiring and redeeming, taking place seamlessly within a single business day.
- Security: Paxos places a high value on investor safety, working collaboratively with various transaction monitoring and surveillance groups to fortify security measures around users' funds.
- No Fees: In sharp contrast to some other stable fiat-backed coins which impose a charge on the total transaction amount during the purchase and redemption and enforce a minimum withdrawal limit, Pax Dollar distinguishes itself by removing such restrictions. Users have the freedom to buy/exchange Paxos Dollar stablecoin without incurring any additional fees, enhancing its accessibility and user-friendly appeal.
What Are The Drawbacks of Pax Dollar
- Lack of Originality in Concept and Software Foundation: Despite USDP creators highlighting the uniqueness of their cryptocurrency, they haven't brought any groundbreaking solutions to the market. The USDP stablecoin is essentially seen as a conventional ERC-20 token.
- Confusing Branding: some exchanges, such as Blockchain.com, markets PAX as USD Digital, causing confusion among its customers.
- Centralization Concerns: Many crypto-enthusiasts see the centralization of the token as a significant drawback, inherent in stablecoins for practical reasons. The initial vision of cryptocurrencies, DeFi, and DAO wasn't to create platforms for trading speculative assets but to challenge the monopoly of traditional financial institutions in currency issuance and cross-border transactions. Despite this, the average user, not necessarily a committed crypto-anarchist, need not overly worry about the centralization of the crypto dollar. It's crucial to recognize that centralization isn't inherently negative; it often involves custodial storage of funds, providing password recovery options. Centralization supports fraud prevention, a more user-friendly interface, and robust customer support. However, the entry barrier for decentralized services remains high, requiring technical expertise in using web3 wallets.
What Is Pax Dollar (USDP) Used For
Paxos, drawing on its deep expertise, has not only established itself as a creator of stablecoin protocols but has introduced an innovative initiative known as "stablecoin-as-a-service." This groundbreaking approach has been strategically offered to a diverse range of entities worldwide, including commercial banks, payment processors, global enterprises, cryptocurrency exchanges, and remittance firms.
What stands out is the considerable attention this service has garnered in Latin America. Recent developments highlight the integration of stablecoins into major digital financial platforms in Uruguay and Argentina, marking a significant shift in the financial dynamics of the region. A notable collaboration that emphasizes the global impact of this initiative involves Paxos working closely with Binance to co-create Binance's native BUSD stablecoin.
It's crucial to emphasize that Paxos's stablecoin-as-a-service products prioritize security, consistently backed by tangible assets like cash or cash equivalents. This thorough approach not only ensures the stability and reliability of the stablecoin protocols but also enhances their relevance across diverse sectors in the ever-evolving world of digital finance.
Is Mining Possible for Pax Dollar?
Pax Dollar (USDP) doesn't allow mining; instead, creating new USDP tokens (minting) involves users depositing an equivalent amount of fiat to get USDP. On the flip side, the redemption process allows users to cash in their USDP tokens, with each redemption equaling $1. However, USDP holders can explore ways to earn different yields by getting involved in DeFi products like staking, farming, and liquidity provision. Additionally, certain centralized exchanges provide various earning incentives for USDP token holders. For example you can use some third party services to create a USDP high-yield savings wallet and earn up to 9% interest.