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In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Studying Stablecoins with the New Digital Dollar Paxos Standard (PAX)  

The Paxos Standard Token (PAX) is an Ethereum Request for Comment (ERC20) stablecoin they label “the New Digital Dollar.

Like most stablecoins, the PAX is a financial services application they market as a cryptocurrency. For instance, Paxos’ developers claim you can use the PAX for peer-to-peer (P2P) money transfer, commerce, trading, and as a holding mechanism.

To clarify, the holding mechanism comprises a smart contract that makes payment in a US dollar when you spend one PAX. The Paxos Trust Company holds the dollars.

The Paxos white paper claims the New York State Department of Financial Services regulates the Paxos Trust Company. However, the US federal government does not regulate the Paxos Trust Company, or Paxos Standard.

What Value Does Paxos Standard Have?

It appears Paxos’ holding mechanism is working because CoinMarketCap valued the PAX at $1.00 on 18 April 2019.

Moreover, the Paxos Standard Token has some street credit with speculators. To explain, Paxos Standard had a Market Capitalization of $108.456 million on 18 April 2019. Hence, CoinMarketCap listed the PAX as the 62nd most valuable cryptocurrency on that day.

In addition, CoinMarketCap gave the PAX a 24-Hour Market Volume of $61.807 million on the same day. Thus, speculators are showing interest in the Paxos Token.

Additionally, Paxos itself claimed to have minted $464.80 million PAX on 18 April 2019. Moreover, Paxos calcuates people spent $356 million worth of PAX by that day. Plus, Paxos claims to have processed total PAX transactions of $16.458 billion as of 18 April 2019.

Finally, CoinMarketCap calculated there was a Circulating Supply of 108.401 million PAX and a Total Supply of $108.721 million PAX on 18 April 2019.

Is PAX a Venmo for Cryptocurrency and Dollars?

The best way to view the Paxos Standard Token is as a P2P payment solution they build in the Ethereum blockchain.

Here is how the Paxos creators intend the PAX Token to work. First you deposit $1 in a Paxos Trust account. Second, Paxos mints a PAX Token. Third, you can send the Paxos Standard Token to a recipient via email, an e-commerce platform, or social media. Fourth, the recipient can spend the Pax Token or cash it in for $1.

Hence, a good way to view Paxos Standard is as a blockchain Venmo. To explain, Venmo is the popular P2P solution PayPal (NASDAQ: PYPL) owns. Venmo uses a smartphone app to make P2P payments easy to access and use.

Notably, Venmo is growing fast. For instance, Venmo’s net payment volume grew from $12 billion in 4th Quarter 2017 to $19 billion in 4th Quarter 2018, Statista estimates. Additionally, Statista calculates Venmo’s net payment volume grew by 80% in 2018.

Moreover, Expanded Ramblings estimatesVenmo had 27 million users in November 2018. Plus, two million American retailers accepted Venmo payments in January 2018.

Can Paxos Make Money?

Unfortunately, PayPal CEO Dan Schulman admits Venmo is not making money, in his 4th Quarter 2018 conference call.

Therefore, Paxos could have a tough time making money from its P2P solutions. Hence, Paxos needs to offer commerce and trading solutions. For example, Paxos could charge fees for every purchase or trade made with a PAX.

In addition, Paxos can offer services like remittances, international money transfers, cross-border payments, and lending to consumers. Specifically, McKinsey estimates financial institutions generated $1.9 trillion in revenue from cross-border payments in 2017.

Furthermore, McKinsey’s analysts expect cross-border payments revenues to grow to $2 trillion in 2018 and $3 trillion with five years. In particular, McKinsey estimates cross-border payments revenues grew by 11% in 2017.

Are Cross Border Payments Paxos’ Future?

Hence, there could be a big market for the Paxos Standard Token in cross-border payments.

Moreover individual consumers need better, faster, cheaper, and more convenient cross-border payments solutions for individuals. For instance, the average individual cross-border payment by wire transfer costs 6.9%, The World Bank estimates.

Thus, it costs $13.80 to send $200 to a friend in another country. Consequently, Paxos could make money if it offers cross-border peer-to-peer payment that costs under $5 to send.

In particular, there will be a huge market for a low-flat fee P2P cross-border and money-transfer payment solution. However, to reach a mass market that solution will need to be available as a smartphone app like Venmo is. Note: I could find no plans for a Paxos app on its website.

The market for individual cross-border payments; or remittances, is growing fast. In fact, the World Bank projects the volume of all remittances grew by 10.3% to $689 billion in 2018. Additionally, the World Bank predicts the remittance market will grow to $715 billion in 2019.

Is the Paxos Stable Token Legal?

Like other Stablecoins Paxos faces a few problems. I think two of these problems could threaten Paxos’ growth.

First, Paxos is offering banking services with limited regulation. For instance, New York State; not a federal agency, regulates the Paxos Trust Company. Consequently, the Paxos Standard Token has no legal standard with the Federal Deposit Insurance Corporation (FDIC) or the Securities and Exchange Commission (SEC).

Thus authorities anywhere could restrict or ban the PAX because it is an unregulated, and potentially illegal, financial instrument. In addition, recipients are under no legal obligation to accept PAX Tokens in payment. If that occurs, PAX will have no value.

Are Paxos Standard Tokens and Stablecoins Dollar Imperialism?

A great problem for Paxos and other stablecoin efforts will be accusations of “dollar imperialism.”

Strangely, politicians, intellectuals, or regulators in some countries could view stablecoins like the Paxos Standard Token as an effort to subvert their national sovereignty. To explain, stablecoins offer an alternative to questionable fiat currencies like the Venezuelan bolivar. Moreover, a central bank will have a difficult time setting monetary policy if citizens can ignore its fiat currency.

In particular, dollar stablecoins could increase American influence in Latin America where the US dollar is the most popular currency. Under those circumstances, nationalists could view stablecoins as “dollar imperialism” and try to ban them.

The dollar imperialism accusations will be popular in regions, like Latin America, where anti-American hysteria is widespread. Notably, Uncle Sam always makes a great scapegoat for a country’s problems.

Paxos needs more fiat currencies

Fortunately, there is an easy solution for dollar imperialism accusations; promoters could issue stablecoins they peg to other currencies. The Euro, Japanese Yen, British Pound Sterling, Canadian Dollar, Australian Dollar, Hong Kong Dollar, Chinese Yuan, Singapore Dollar, and Swiss Franc for example.

Consequently, stablecoin creators like Paxos need to offer access to more fiat currencies. I believe there is a huge market for greenback-alternative stablecoins. In addition, green-back alternatives will make Paxos’ products stand out in a crowded stablecoin market.

In the final analysis, I think the Paxos Standard Token (PAX) is a good stablecoin plan with no real world value. Therefore, speculators should watch PAX but not buy it.