PAXG (Pax Gold) is an ERC20 token on the Ethereum blockchain that tracks the spot price of 1 troy ounce of gold. The token is backed by physical gold held by Paxos Trust Company LLC. The physical gold is stored in LBMA vaults in London as allocated gold bars.
From the 2nd of December 2024 Deribit users can:
- Deposit PAXG into their Deribit account.
- Trade PAXG in spot markets with USDC and BTC.
- Trade the PAXG perpetual and dated futures.
- Withdraw PAXG from their Deribit accounts.
And from the 3rd of December 2024 users can:
- Trade PAXG options.
This means traders on Deribit can now use spot, perpetuals, dated futures, and options to:
- Speculate on the price of physical gold.
- Use gold as collateral to trade the other Deribit products, e.g. use PAXG as collateral to trade BTC options (with cross collateral).
- Hedge their gold holdings.
- Hedge against inflation.
And all while remaining within the crypto ecosystem.
Gold has proven itself to be an effective store of value over literally thousands of years. It doesn’t have the same level of volatility as bitcoin, with bitcoin typically experiencing larger moves to the upside and downside. However, this relative calm can be seen as a positive by traders looking for some stability in their portfolios while still hedging against the devaluation of fiat currencies.
Why tokenised gold?
It is a great feeling to hold a pure gold coin in your hand, or if you’ve done well for yourself, a gold bar, but there are benefits that tokenised gold can offer.
Firstly, it’s not very practical to divide that coin in your hand into smaller pieces. Whereas a tokenised gold token can easily be divided into tiny fractions.
It’s also not simple to send that coin to someone who doesn’t share the same physical location as you. In comparison it is trivial to send a token to anywhere in the world in a matter of minutes by utilising a blockchain network.
Most brokers are not going to accept physical gold as collateral for other positions you want to hold, meaning some other type of collateral, such as dollars, would need to be deposited. With Deribit’s cross collateral system though, PAXG can be used as collateral to support positions in derivatives instruments. This means a trader can effectively use gold as collateral to trade BTC options, ETH futures, USDC perpetuals or any of the other available derivatives.
This improves capital efficiency by allowing traders to continue to hold their relatively stable inflation hedge, while also using it to support a portfolio of other positions.
As it is a token and is traded on crypto exchanges rather than traditional markets, PAXG trades 24/7. If an event occurs over the weekend that you think is likely to affect the price of gold, you can express that view straight away via PAXG, rather than having to wait for the markets to open on Sunday evening or Monday, depending on which product you’re trading.
PAXG Info
For those not already familiar with PAXG specifically, here are some additional facts about the token:
- Can be created with USD or unallocated gold.
- Minimum trade size is 0.01 troy oz.
- At any time PAXGholders can see the serial number, value and physical characteristics of their vaulted gold.
- Institutional investors can redeem PAXG for LBMA accredited Good Delivery gold bars, unallocated loco London gold, or for USD.
- A nationally ranking auditor attests to the matching supply of PAXG tokens and underlying gold assets every month.
- Unlike many other methods of owning physical gold storage, there are no storage fees associated with holding PAXG.
- Paxos do charge for creation or redemption of PAXG tokens, but this is not charged when simply trading existing PAXG tokens, e.g. in the spot markets on Deribit.
For more info on PAXG, see the Paxos website here.
Diversification of collateral
Bitcoin and gold can work together to help diversify a portfolio, especially when combined with stablecoins such as USDC and USDT, and yield generating coins such as USYC. All of these currencies are now available to trade and hold on Deribit, and all can be used as collateral to trade any derivative instrument by utilising Deribit’s cross collateral system.
