PAX Gold (PAXG): Digital Gold's Safe Haven in the 2025 Crypto Storm

Page 19

‍

8.D Burn Mechanisms: PAXG’s token economics include a straightforward burn mechanism tied to redemption of the underlying asset. Whenever a PAXG holder redeems tokens for physical gold or fiat, those PAXG tokens are burned (destroyed) permanently. This mechanism ensures the circulating token supply always matches the amount of gold in custody. For example, if an investor holding 100 PAXG decides to redeem them, Paxos will allocate the corresponding 100 ounces of physical gold for delivery (or sell them for cash payout) and execute a burn of 100 PAXG tokens on the Ethereum blockchain, reducing supply accordingly (Paxos | Pax Gold (PAXG)) (PAX Gold [PAXG], Real-World Asset: Investor Guide). This 1:1 burn on redemption is a critical stabilizing mechanism: it prevents any accumulation of unbacked tokens and aligns token supply with actual demand for the asset. PAXG tokens can also be minted when new gold is deposited – but only authorized Paxos accounts can call the mint function, and only after receiving payment for gold. So issuance and burning are tightly controlled by Paxos through KYC’d processes. Importantly, unlike algorithmic stablecoins that might “burn” or mint tokens to maintain a peg, PAXG’s burning is purely user-initiated through redemption; there’s no discretionary burning by Paxos except to fulfill customer requests or comply with asset seizures (in rare legal cases, Paxos could burn tokens from illicit actors – essentially a forced redemption with funds possibly held or forfeited – but this is part of the AssetProtectionRole, not normal economic operations).

In terms of tokenomics, PAXG has no predefined emission or burn schedule; supply is elastic. It expands and contracts based on user demand: if more people want digital gold, Paxos mints more PAXG (backed by new gold deposits), if people want to exit to real gold or cash, supply contracts via burns. Historically, PAXG’s supply grew steadily from zero in late 2019 to around 250k+ ounces equivalent by 2023, with occasional small contractions when large holders redeemed (Australia's Gold-Backed Crypto Under Threat As Issuer Backs Away - Blockworks). There is no “burn fee” (aside from the redemption fee paid) – the burn itself is just a ledger adjustment. One could view the redemption fee as a kind of “burn tax” that is Paxos’s revenue, but it’s not burned; it’s taken as revenue and presumably used to buy that gold or cover costs. From a financial perspective for Paxos, burning tokens means returning the corresponding gold or value to the customer and thus reducing custody assets – it does not have a direct P&L impact except the fee earned. For token holders, the burn mechanism ensures price stability: anyone can effectively remove PAXG from circulation at the rate of 1 oz gold each, so the token price cannot fall far below the gold price without arbitrage. Conversely, if PAXG traded above gold, new supply can be minted by arbitrageurs to push it down. Thus, the burn/mint process is fundamental to maintaining the peg via market forces. In summary, PAXG’s burn mechanism is simple, transparent, and fully aligned with its asset-backed nature: tokens exist only as a representation of gold, and whenever that gold backing is claimed and leaves the system, the tokens leave as well. This is a well-tested model (similar to USDC/USDP stablecoin burns on redemption) and poses no hidden financial risk – there’s no algorithm or treasury juggling beyond delivering the underlying asset. Investors can be confident that PAXG supply cannot be inflated or deflated arbitrarily; it moves only with investor actions.

8.E Use of Funds and Runway: Paxos has been using its funds to build a regulated, scalable infrastructure for digital assets, and current indicators suggest a long runway. With $500M+ in cash as of mid-2024 and a leaner operation after cost cuts, Paxos can sustain its burn rate for many years if needed (Paxos Cuts 20% of Staff: Reports) (Paxos Cuts 20% of Staff: Reports). Use of Funds: Historically, Paxos deployed capital towards product development (engineering costs to build the Paxos platform, smart contracts, and regulatory tech), regulatory licensing efforts, and expanding its operations globally (offices in New York, London, Singapore) (Paxos Adds Bank of America, Coinbase Ventures, Founders Fund & FTX to Series D Funding Round - Paxos | Newsroom). Paxos also likely allocates funds to maintain high compliance standards – e.g., funding for audits, legal counsel, and regulator engagement is significant for a trust company. A portion of funds went into scaling the team: Paxos grew to ~350 employees by 2022, hiring across engineering, compliance, and business development, to support partnerships with enterprises like PayPal and banks. Another use has been reserves and capital buffers required by regulators (some of the raised capital must sit as required capital). By 2023, seeing the changing market, Paxos chose to concentrate on core business lines, implying they reduced spend on less profitable areas (like the settlement service which was capital intensive but slow to monetize) (Paxos Cuts 20% of Staff: Reports). In June 2024 Paxos laid off 65 employees (~20% staff) despite a strong balance sheet, signaling a pivot to efficiency and extended runway (Paxos Cuts 20% of Staff: Reports). This suggests Paxos is positioning to ensure it can weather a crypto bear market or regulatory delays without needing immediate new funding. Runway: Considering operating costs – Paxos’s annual expenses might include payroll for ~250-300 staff, compliance costs, tech infrastructure, insurance, etc. Even if that’s, say, $80–100 million per year (rough estimate), having $500M in the bank equates to at least 5 years of runway at a high burn, possibly more now after cuts. Additionally, Paxos is generating revenue (tens of millions annually, possibly more given stablecoin interest yields in 2023–24). For instance, on $1B of USDP/PYUSD reserves invested in T-bills at ~5%, Paxos could earn ~$50M/year interest – some of which may go to Paxos depending on agreements. Combine that with fees from brokerage and PAXG, Paxos might already be approaching break-even or better on an operating basis. If so, its runway could be essentially indefinite. But even under conservative assumptions of still being in loss mode, Paxos likely has 3–5+ years of runway without requiring new funding, which is exceptional in this industry. This long runway is a strategic asset: it allows Paxos to navigate the slow regulatory process (e.g. pursue a national bank charter eventually, build trust with cautious institutions) and outlast less funded competitors. It also means Paxos can plan long-term for PAXG expansion (like integrating with institutional trading venues) without short-term financial pressure. The use of funds going forward will likely focus on strategic growth – e.g. Paxos could allocate capital to customer acquisition for PAXG (marketing to institutions or integrating with fintech apps), or even M&A of complementary tech. However, given the cautious stance, we expect Paxos to mainly invest in technology improvements and compliance, keeping a substantial capital buffer intact. Investor perspective: a well-funded company with prudent use of funds and long runway reduces the risk of dilution or distress. Paxos’s financial discipline (illustrated by cutting costs in a downturn rather than burning excess cash) (Paxos cuts 20% of workforce despite having more than $500 million ...) is generally a positive sign for investors. It suggests the team is focused on long-term value creation and protecting investor capital. For PAXG holders, Paxos’s ample funds and runway imply that support for the token (customer service, liquidity facilitation, regulatory maintenance) will continue uninterrupted for the long term, with low risk of an abrupt shutdown due to financial troubles.

8.F VC Involvement and Influence: Paxos’s venture capital investors are among the most prominent in finance and crypto, and their involvement brings not only capital but strategic guidance. Notable investors include Founders Fund (Peter Thiel’s firm), Oak HC/FT, Declaration Partners (linked to Carlyle), PayPal Ventures, Mithril Capital, Bank of America, Coinbase Ventures, and previously FTX (via an investment prior to FTX’s collapse) (Paxos Adds Bank of America, Coinbase Ventures, Founders Fund & FTX to Series D Funding Round - Paxos | Newsroom) (Paxos Adds Bank of America, Coinbase Ventures, Founders Fund & FTX to Series D Funding Round - Paxos | Newsroom). These investors have different motivations and influences. Strategic influence: Investors like Bank of America and PayPal had strategic interests – indeed, soon after investing, PayPal partnered with Paxos to power its crypto buying service in 2020 (Wilson Sonsini Advises Paxos on $142 Million Series C Fundraise), and Bank of America joined Paxos’s blockchain settlement network in 2021 (Paxos Adds Bank of America, Coinbase Ventures, Founders Fund & FTX to Series D Funding Round - Paxos | Newsroom). It’s likely these investors encouraged Paxos to focus on enterprise use cases, ensuring Paxos built infrastructure suitable for large financial institutions (which aligns with Paxos’s DNA). The presence of regarded fintech VCs (Oak HC/FT) suggests a push towards ensuring regulatory compliance and tapping big financial markets, rather than pursuing risky DeFi experimentation. Board and governance: Paxos’s board presumably includes representatives from lead investors (e.g., from Oak or Declaration) who play a role in major decisions. VC influence has likely been felt in Paxos’s pivot to tokenization – after achieving success with stablecoins, the next growth area (and something VCs love) is tokenizing real-world assets (like gold, securities, etc.) to unlock new markets. PAXG itself is a form of that strategy. VCs have probably encouraged Paxos to pursue opportunities like PAXG aggressively, as it differentiates Paxos from pure stablecoin issuers. At the same time, investors want Paxos to avoid undue risks that could jeopardize an eventual exit. For instance, when Paxos was facing regulatory heat with BUSD, one can imagine board discussions about minimizing conflict with regulators – likely influencing Paxos’s decision to wind down BUSD amicably and reinforce its fully-regulated product lines (USDP, PAXG, and new ones like PYUSD) (SEC and the NYDFS Take Aim at Paxos | Winston & Strawn) (Paxos Cuts 20% of Staff: Reports). Long-term vision: Many of Paxos’s investors are in it for a multi-year horizon expecting Paxos to become foundational financial market infrastructure. They likely influence Paxos to pursue big partnerships (like with e-commerce or tech giants for stablecoins) and ensure all products (including PAXG) meet institutional standards that would appeal to large customers or acquirers. As a result, Paxos’s culture is relatively buttoned-up and institution-friendly compared to typical crypto startups – a reflection of VC influence steering it as a fintech rather than a crypto anarchist project. Potential conflicts: One must consider if any investors have specific agendas that could conflict with PAXG users. For example, could an investor push Paxos to favor certain products over others? Conceivably, an investor like FTX (when it was alive) might have wanted Paxos to prioritize exchange-related services. However, FTX’s investment was small and now moot. Bank of America might care more about settlement tech than gold tokens, but their presence likely just ensures Paxos doesn’t stray from compliance, which benefits all products. On balance, the investor group is fairly aligned on Paxos’s mission to modernize finance with blockchain. Support and resources: Having large VCs and corporate investors also provides Paxos access to networks – e.g., introductions to potential clients, talent recruitment, and credibility when dealing with regulators (Carlyle’s connections or Thiel’s public advocacy for crypto can help). For PAXG, this could mean easier acceptance by exchanges and platforms who see Paxos as well-backed. Investor oversight: We should note that VCs also demand financial discipline and progress. Paxos’s move to cut costs and focus could be partially driven by investor input, ensuring the company isn’t burning cash without traction. This influence has helped Paxos remain in a strong position even in a down market. In conclusion, VC involvement in Paxos has been largely positive, reinforcing its institutional approach and providing deep pockets and guidance. The influence is evident in Paxos’s strategic choices: heavy compliance, targeting big partners (like PayPal) over retail hype, and focusing on core strengths. For an investor evaluating PAXG, the backing of Paxos by credible VCs and partners is a strong green flag – it indicates PAXG is supported by an organization with serious governance and resources. There is little evidence of undue or misaligned influence; rather, the investors’ goals (build a valuable, compliant, widely-used platform) coincide with PAXG holders’ goals (a stable, trusted asset).

8.G Revenue vs. Expenses: As a private company, Paxos doesn’t publish detailed financials, but based on available information we can assess the relationship between its revenues and expenses. Paxos’s expenses include: personnel (engineers, compliance, ops), technology infrastructure (running nodes, data centers, security), insurance, licensing and legal fees, and general corporate overhead. By cutting 20% of staff in 2024, Paxos likely brought expenses down, perhaps to the range of $70–80M annually (speculative). Revenues in recent years have grown, particularly in 2021–2022 with the crypto boom. Key revenue contributions: BUSD stablecoin (when it was active, Paxos reportedly earned a modest basis-point fee on transactions plus invested reserves – at $16B peak supply (Paxos Cuts 20% of Staff: Reports), even a small yield meant tens of millions annually), USDP stablecoin (smaller, but now growing post-BUSD), and more recently interest income due to high interest rates on reserve assets (which by mid-2023 likely became the largest revenue source for any stablecoin issuer). Additionally, Paxos’s brokerage service for PayPal and others was likely generating revenue per trade or via spreads (PayPal’s crypto volume was significant in 2021). PAXG revenue, as discussed, is a smaller slice but contributes via fees on a growing base (Tokenised Gold Investments: Tether XAUT vs Paxos PAXG). Paxos also had a services revenue from its private settlement platform (charging fees to settle stock trades for Credit Suisse, etc.), but that was limited in pilot scale and is being sunset. While exact figures aren’t public, one public hint: Paxos was reportedly profitable in 2021 during the crypto bull run, or very close, thanks to surging stablecoin usage and brokerage volume. In the downturn of 2022–2023, revenues likely dipped or at least didn’t grow as expected, while expenses remained high, prompting the belt-tightening. By mid-2024, Paxos’s CEO stated the firm is in a strong position to succeed financially (Paxos Cuts 20% of Staff: Reports) (Paxos Cuts 20% of Staff: Reports). We can interpret that as Paxos aligning its cost structure to match its current revenue streams. Revenue vs Expenses trend: Post-layoffs, Paxos might be near break-even: its stablecoin reserves (USDP ~ $1B, PYUSD ramping up) yield significant interest; PAXG and brokerage provide fee income; and expenses have been trimmed. Even if still operating at a net loss, the gap is likely much smaller than in early expansion years. This is crucial: it means Paxos is not forced to raise capital at inopportune times; it can sustain itself possibly until an exit.

‍

Thank you for taking the time to read this article. We invite you to explore more content on our blog for additional insights and information.

https://www.thestandard.io/blog  

‍

"If you have any comments, questions, or suggestions, please do not hesitate to reach out to us at [ https://discord.gg/K72hed6FRE ]. We appreciate your feedback and look forward to hearing from you."

‍

CLICK HERE TO CONTINUE

PAGE 20: www.thestandard.io/blog/pax-gold-paxg-digital-golds-safe-haven-in-the-2025-crypto-storm-20