What Is Pax Dollar (USDP)?

Before the emergence of stablecoins, the world of finance was largely dominated by fiat currencies, such as the US dollar, the euro, and the yen. These currencies are issued by central banks and their value is largely determined by market demand and supply, but especially by government policies such as interest rates and monetary policy.

The use of fiat currencies for international transactions can be costly, slow, and subject to excessive government controls, particularly in times of economic or political uncertainty. This has led to the development of stablecoins, which seek to combine the advantages of blockchain technology with the low volatility of fiat currencies, and have the potential to revolutionize the way transactions are conducted globally.

Pax Dollar (USDP), a stablecoin minted by Paxos, is one such asset that aims to provide a secure and reliable means of transacting value on the blockchain.

Pax Dollar (USDP) was first launched in September 2018 by the New York-based company Paxos, a financial technology company that provides blockchain-based solutions for digital assets. The Paxos team is led by CEO and Co-Founder Charles Cascarilla and includes members with backgrounds spanning from Wall Street to Silicon Valley. Since its launch, USDP has gained popularity among users who seek a reliable and transparent means of transacting value on the blockchain.

As of 2023, USDP remains an important stablecoin in the digital asset ecosystem, with a market capitalization of over $1 billion and growing adoption among users and businesses worldwide. In addition to USDP, Paxos has also launched other stablecoins, PAX Gold (PAXG) and Binance USD (BUSD), which are respectively pegged to the value of one fine troy ounce of gold, and the US dollar.

How Does Pax Dollar Work? Issuing and Redeemability

The value of PAX Dollar (USDP) is maintained at a 1:1 ratio with the U.S. dollar through a mechanism called collateralization. This means that for every unit of USDP issued, Paxos holds an equivalent amount of U.S. dollars in reserve.

When a user wants to purchase PAX Dollars, he/she can send U.S. dollars to Paxos’ bank account. Paxos then issues an equivalent amount of USDP to the user’s wallet address. The user can then use PAX to transact on various cryptocurrency exchanges and other platforms that accept PAX Dollars. Each unit issued by Paxos is backed by an identical number of U.S. dollars in reserve, ensuring that PAX is always completely collateralized. The amount of PAX in circulation and the amount of US dollars held in reserve are both displayed in the daily attestation reports that Paxos releases.

When a user wants to redeem their PAX Dollars for U.S. dollars, they can send USDP back to Paxos, and Paxos will send an equivalent amount of U.S. dollars to the user’s bank account. This process is known as redemption. Users must first successfully complete the regulatory authorities’ KYC (Know Your Customer) and AML (Anti-Money Laundering) requirements in order to redeem PAX Dollars. The user can use the Paxos platform to submit a redemption request after these checks are complete.

With considerably higher availability and flexibility than the conventional banking system, anyone, anywhere can send and receive stable US dollar value assets using the Pax Dollar (USDP). Moreover, Paxos enables the capability of frictionless cross-border asset transfers with no discriminatory requirements, almost instantly.

Below are three benefits of using Pax Dollar, which sums up the above.

1. Regulation: Paxos is regulated by the New York State Department of Financial Services (NYDFS). This means that Paxos is required to comply with strict regulations related to financial stability, consumer protection, and anti-money laundering (AML). The regulation provides users with a greater level of trust.
2. Transparency: Paxos publishes daily attestations of the reserves that back Pax Dollar. This provides users with a clear understanding of how many PAX are in circulation and how many U.S. dollars are held in reserve to collateralize those PAX. This transparency helps to maintain the trust of users who hold and transact with Pax Dollar.
3. Availability: Pax Dollar is available on many cryptocurrency exchanges and platforms, making it easy for users to buy and sell PAX. This availability helps to increase liquidity and makes it easier for users to transact in Pax Dollar.

Pax Dollar (USDP) Transparency

Source: Pax Dollar (USDP) Transparency - Paxos

The Paxos USD stablecoin (USDP) is fully backed by US dollars held in reserve, which are regularly audited and verified by third-party auditors. This ensures that the USDP stablecoin is fully collateralized at all times and provides a high level of transparency and security to users.

Paxos provides regular attestations of its reserves, which are available for public viewing. These attestations are conducted by leading accounting firms like WithumSmith+Brown, PC and are designed to provide independent verification of the Paxos reserves.

Characteristics of USDP Coin

USDP is an ERC-20 token, which means it is built on the Ethereum blockchain and follows the ERC-20 standard for tokens. This allows USDP to benefit from the security and infrastructure of the Ethereum network, as well as the compatibility with other ERC-20 tokens and Ethereum-based applications. USDP is also available on the Binance Smart Chain as a BEP-20 token, which allows for cross-chain interoperability with other Binance Smart Chain assets. This improves the availability and accessibility of the asset, as it can also be used on major decentralized applications built on the Binance Smart Chain.

To summarize, below are some of the characteristics of USDP.

• Stable value: As a stablecoin, USDP is designed to maintain a stable value in relation to the US dollar, which means that one USDP token should always be equivalent in value to one US dollar;
• Transparency: USDP is an ERC-20 token built on the Ethereum blockchain, which means that transactions can be tracked and verified on the blockchain, providing transparency and accountability;
• Collateralization: USDP is backed by actual US dollars held in reserve by regulated financial institutions, which provides reassurance that the token has real value and can be redeemed for US dollars at any time;
• Audited and regulated: The integrity and stability of the token are supported by the fact that the issuers of USDP are audited by independent third-party auditors and that they adhere to all relevant laws;
• Fast transactions: USDP circulates on blockchain technology, therefore it can be sent and received quickly.

USDP Use Cases

USDP has many use cases in the cryptocurrency ecosystem, including:

• Facilitating crypto trading: By using USDP instead of USD, traders can avoid the volatility of other cryptocurrencies and still maintain a stable value.
• Cross-border payments: USDP can be used for cross-border payments without the need for expensive and time-consuming traditional banking processes. This is particularly useful for remittances and international trade.
• Merchant payments: USDP can be used for merchant payments, either online or in-person, allowing merchants to accept cryptocurrency payments without the risk of volatility. Because USDP is easily convertible to USD, it is an attractive choice for businesses that want to accept cryptocurrency payments, yet are reluctant to take on the risks involved with other cryptocurrencies.
• Store of value: USDP can be used as a store of value similar to fiat currencies since its value is pegged to the U.S. dollar.

USDP, due to its flexibility, is also used in a variety of DeFi applications. It can be used as collateral or as a loan currency on lending and borrowing platforms, as a trading pair on decentralized exchanges, in yield farming strategies, in stablecoin pools, and as a payment option on cryptocurrency payment platforms.

For example, the decentralized exchanges Curve and Balancer allow users to provide liquidity to their pools by depositing various stablecoins, including USDP, in exchange for LP (liquidity provider) tokens. These LP tokens can then be staked to earn rewards. In both Curve and Balancer, users can benefit from the stability and liquidity of USDP, while also participating in the DeFi ecosystem and earning rewards. In addition, the popular applications Uniswap and Sushiswap also allow users to use USDP. Indeed, on these platforms, users can exchange USDP for other cryptocurrencies or stablecoins. The smart contracts automatically calculate the exchange rate and execute the trade, with a small fee paid to the platform and the liquidity providers.

In summary, USDP can be used in Curve, Balancer, Uniswap, and Sushiswap to trade between stablecoins and other cryptocurrencies, provide liquidity to liquidity pools, earn fees and rewards, and create custom portfolios of cryptocurrencies and stablecoins. These platforms represent just a few of the many DeFi applications that support USDP and demonstrate the versatility and utility of stablecoins in the cryptocurrency ecosystem.

Is Pax Dollar a Good Investment?

Because Pax Dollar is designed to maintain a stable value, it is not typically considered an investment in the traditional sense. However, investors can still use USDP to hedge against the volatility of other cryptocurrencies or to earn a yield by staking or lending it on various decentralized platforms. For less experienced users, there are also centralized platforms that offer lending or staking services. The challenge is knowing how to choose the most reliable one with a solid history.

Pax Dollar (USDP) is considered to be one of the most reliable stablecoins in the market because it is fully backed by USD reserves and is frequently audited. Moreover, the Paxos company is strictly regulated by the New York State Department of Financial Services (NYDFS), which provides an additional layer of security, honesty, and transparency for many individuals and institutions. Currently, Pax Dollar is ranked sixth on the list of stablecoins with the largest market caps, but it may be moving up the list, considering that other stablecoins that are not yet fully regulated may soon face restrictions.

News on USDP

As announced in February 2023, Paxos will officially end its partnership with Binance for the branded U.S. dollar-pegged stablecoin, BUSD. Paxos has been issuing BUSD since 2019, but was forced to terminate its relationship with the largest cryptocurrency exchange by volume after NYDFS abruptly instructed Paxos Trust to cease issuing the stablecoin. This announcement comes shortly after the United States Securities and Exchange Commission (SEC) allegedly sent Paxos a notification asserting that BUSD is an unregistered security.

While not everyone agrees that stablecoins are securities, Paxos is now required to collaborate with regulators and stop minting BUSD. Paxos has announced that clients will still be able to redeem their funds in U.S. dollars and convert their BUSD tokens to Pax Dollar (USDP) for at least another year. Additionally, all current BUSD tokens will continue to be fully backed and redeemed through Paxos Trust Company. This means that, for now, there are no investigations into the minting of Paxos’ other tokens, USDP and PAXG, which can still be minted and redeemed.