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References (Technology & Infrastructure):

• OpenZeppelin – “Proxy Upgrade Patterns in Ethereum.” (re: AdminUpgradeabilityProxy usage)
  
  
• Etherscan – PAXG Smart Contract Source Code & Analytics (accessed 2025).
  
  
• ChainSecurity – “Security Audit of Paxos Token Contracts.” 2019 (summary of findings).
  
  
• London Bullion Market Association – “Security Standards for Vaulting.” 2020.
  
  
• Ethereum Foundation – “Ethereum 2.0 and Sharding Roadmap.” 2022.
  
  
• Paxos Support Center – “How to Redeem PAXG for Gold Bars or Cash.” 2023.
  
  
• Compound Governance – “Proposal Add PAXG Market.” July 2020.
  
  
• Chainlink Documentation – PAXG/USD Price Feed details (retrieved 2025).
  
  
• Alpha Bullion – “Redeeming PAXG for Physical Gold.” (Guide, 2021).
  
  
• CoinGecko – “PAXG on Polygon (Wrapped) Tracker.” 2024 (on early cross-chain experiments).
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4. Tokenomics & Economic Model

Asset Peg and Value Proposition

PAX Gold’s tokenomics are unique in that they are straightforward yet underpinned by a tangible asset. Each PAXG is pegged to one fine troy ounce of gold held in custody (All about PAX Gold (PAXG) | Binance.US Help Center). This 1:1 backing means the token’s value is directly tied to the market price of gold. Unlike algorithmic stablecoins or cryptocurrencies with complex emission schedules, PAXG doesn’t rely on supply/demand equilibrium through code to maintain its peg – it relies on the legal and operational framework that guarantees convertibility into gold. The value proposition is essentially: own gold, but in a digital form.

From a tokenomics perspective, PAXG functions as a stablecoin for gold – sometimes called a commodity-backed stablecoin. However, gold itself is a volatile asset (though generally less volatile than crypto). So while PAXG is stable relative to crypto markets (often moving inversely to Bitcoin and others, acting as a hedge), it is not stable in fiat terms; its price floats with gold. This means PAXG inherits gold’s economic characteristics:

• Inflation Hedge: Over the long run, gold’s supply grows slowly (by mining ~1.5% per year globally) and it tends to hold value against inflation. PAXG as a proxy for gold can be seen as an inflation-resistant token, especially appealing when fiat currencies are losing purchasing power. In recent periods of high inflation, gold (and PAXG) saw increased demand (Gold ETF Inflows Hit Three-Year High as PAXG, XAUT Outperform Wider Crypto Market).
  
  
• No Yield Intrinsically: Gold doesn’t pay dividends or interest. PAXG mirrors that – the token itself doesn’t accrue yield just by holding it (in contrast to staking tokens or some DeFi yield-bearing tokens). Any yield must come from external lending or DeFi usage, not from the token’s design.
  
  
• Store of Value and Speculation: Holders of PAXG might be in it for long-term wealth preservation (as many gold investors are), or short-term speculation on gold price moves. The tokenomics accommodate both equally; PAXG has no built-in lockups or vesting – it’s as liquid as gold itself, arguably more so.
  
  

One might ask: what prevents Paxos from over-issuing tokens or fractionally reserving? The answer lies in the company’s structure and regulations: token supply can only increase when a verified user funds a purchase with full collateral (cash or gold), and can only decrease when someone redeems tokens for equivalent collateral (burning the tokens) (PAX Gold Fees – Paxos) (PAX Gold Fees – Paxos). Monthly attestations by auditors ensure Paxos isn’t cheating (). The alignment of interests is strong: Paxos’s business depends on trust, and any deviation would destroy their reputation and invite regulatory wrath. Thus, one can treat PAXG’s peg as credibly backed. It’s not a soft peg or target – it’s literally one token equals one ounce of gold by design and enforcement.

Elastic Supply: The token supply is elastic, expanding and contracting based on market demand:

• If demand rises (more people want PAXG), the price on exchanges might push slightly above gold, prompting arbitrageurs to create new PAXG via Paxos by delivering gold or cash, increasing supply to meet demand.
  
  
• If demand falls (net redemptions), supply shrinks as tokens are burned and gold is withdrawn. There is no fixed cap on PAXG supply – in theory, if Paxos had custody of 1000 tons of gold, that many tokens could exist. Conversely, supply could drop to zero if everyone redeemed (leaving no tokens in circulation and all gold returned). This elasticity ensures that PAXG’s price tracks the underlying; Paxos doesn’t attempt to manage the supply for any target beyond 1 token per ounce.
  
  

This is different from Bitcoin (fixed supply) or Ethereum (slowly changing supply). PAXG’s supply is user-driven and inherently tied to gold flows. In economics terms, PAXG supply is perfectly demand-elastic at the peg price of gold (abstracting fees).

Monetary Policy: Paxos doesn’t have a “monetary policy” for PAXG like a central bank would. There’s no interest rate, no open market operations. The “policy” is simply to always redeem and issue at the 1:1 rate minus small fees, and to safely store the asset. This simplicity is attractive to investors who may be wary of algorithmic backing or governance-driven supply changes. It’s more akin to a currency board system or full reserve system – every token is a warehouse receipt for gold.

Value Proposition to Holders:

• PAXG provides liquidity in an illiquid asset: Gold bars normally are illiquid (you can’t easily subdivide or transfer them at 3am on a Sunday). PAXG brings high liquidity (trade anytime, fractional amounts) to gold. Liquidity itself adds value because it lowers the cost of entry/exit and enables the asset to be used more flexibly (e.g., as collateral).
  
  
• It offers global accessibility: One can send PAXG across borders in minutes, versus shipping gold which is costly and slow. This means PAXG holders can arbitrage global gold price discrepancies or move wealth discreetly in ways physical gold can’t match.
  
  
• It also can be seen as a hedge or safe haven instrument in a crypto portfolio. For crypto-native investors, converting volatile crypto into PAXG is a way to de-risk while staying within the digital asset environment (not needing to withdraw to a bank). In times of crypto turmoil, we have seen investors rotate into PAXG for stability (PAX Gold Token Price, PAXG to USD, Research, News & Fundraising | Messari).
  
  
• For traditional gold investors, PAXG’s value proposition is lower storage cost (Paxos doesn’t charge monthly storage fees like vaults or ETFs do (Paxos | Pax Gold (PAXG))), and potentially better liquidity or yield opportunities.
  
  

In terms of market perception, PAXG is generally valued exactly as an ounce of gold. If gold is $2000, PAXG trades around $2000. If gold goes to $3000 (as it did in some 2025 scenarios (PAXG, XAUT News: Gold-Pegged Cryptocurrencies Retreat From Records Amid Equity Market Rout)), PAXG will go to $3000. So the “tokenomics” from a pricing standpoint is just gold economics. If an investor buys PAXG, they’re making a bet (or hedge) on gold price movements. Paxos does not intervene in the market to influence PAXG price – the market forces do that.

One subtlety: Gold’s price can diverge between different markets (say COMEX futures vs London spot vs Shanghai gold price). PAXG is linked to the London physical price mostly (since redemption gives London bars). During crises, physical gold can have premiums over paper gold. For instance, in March 2020 physical gold in London became slightly scarce and futures diverged. PAXG holders effectively own physical, so PAXG’s “fair value” would track the physical premium. Thus PAXG could, in extreme cases, break sync with generic spot if that spot is unbacked paper. But because arbitrage with physical redemption is possible, PAXG likely sticks to the physical side. This is an advantage: one could arbitrage between COMEX and Paxos if such divergence happened, possibly profiting (or just knowing PAXG’s gold is real if others worry about paper gold).

In conclusion, PAXG’s tokenomics are simple: one token, one ounce, no inflation, no dilution, no yield. It’s a hard-backed commodity token. The value prop is giving gold new liquidity and utility. The peg is maintained not by algorithm but by enforceable redemption rights (All about PAX Gold (PAXG) | Binance.US Help Center). This model has proven effective – over more than 3 years, PAXG has held the peg with minimal deviation, validating the soundness of its economic design. For an investor evaluating tokenomics, PAXG removes many uncertainties: you’re not worried about developer emissions, not worried about governance vote changing supply, not worried about algorithmic collapse – just the age-old worry of “will gold keep its value?” which is a known risk profile.

Supply Dynamics and Mint/Burn Mechanism

PAXG’s supply is dynamic and driven entirely by customer demand, governed by the mint (creation) and burn (destruction) mechanism managed by Paxos. Unlike cryptocurrencies that have predetermined emission schedules or mining, PAXG follows a mint-on-demand, burn-on-demand model:

• Minting (Creation): Whenever a customer (individual or institutional) wants to increase their gold holdings in token form, they initiate a purchase through Paxos. This could be via Paxos’s web portal or API. The customer provides either fiat (USD) or gold (via an allocated transfer or delivery of unallocated gold) to Paxos. Paxos then mints new PAXG tokens equal to the ounces of gold acquired and credits them to the customer’s Ethereum address (PAX Gold Fees – Paxos) (PAX Gold Fees – Paxos). Each minting event increases the total supply of PAXG. For example, if today 1,000 new ounces are bought via Paxos, total supply goes up by 1,000 PAXG. These events are frequent but usually in small batches, although sometimes large mints happen when an institution comes in. Paxos might group some orders but generally mints continuously as needed (they wouldn’t want to delay issuance because customers want immediate asset access).
  
  
• Burning (Redemption): Conversely, whenever a customer redeems PAXG for cash or physical gold, Paxos removes those tokens from circulation. The customer sends PAXG back to Paxos (or Paxos pulls it from their wallet with permission), and Paxos executes a burn function that permanently destroys those tokens, reducing total supply (PAX Gold Fees – Paxos). Simultaneously, the corresponding gold is released from Paxos’s custody (either sold for cash or delivered physically). For instance, if 500 PAXG are redeemed for cash, Paxos burns 500 tokens and pays out $ (500 * gold price). Total supply decreases by 500.
  
  

These mint and burn transactions can be observed on-chain (Paxos’s PAXG issuing address making transfer events to/from null address or from its reserve). Paxos itself holds very little PAXG directly – essentially just transient amounts during processing – because any unsold tokens would mean unallocated gold, which they don’t keep. They might hold some PAXG as inventory for immediate liquidity, but likely minimal.

Supply History: At launch in 2019, initial supply was only as people started buying. Growth was gradual: by mid-2020, supply was a few thousand ounces. In 2021, as crypto boomed and inflation fears grew, PAXG supply expanded significantly (we saw Paxos mention $275M market cap by mid-2021 (ARC: Add PAX Gold (PAXG) Collateral & Borrow Support - New Asset - Aave) which is ~150k PAXG at ~$1,800/oz). By early 2023 supply was around 210k, and by 2025 around 230k ( $3,356.50 | Paxos Gold (PAXG) Token Tracker | Etherscan ) ( $3,356.50 | Paxos Gold (PAXG) Token Tracker | Etherscan ). The pattern often shows spikes when gold gets popular or when a big partner integrates PAXG (like after Coinbase listing, more retail came in). It also can stagnate or shrink if gold goes out of favor (if gold price declines, some might redeem; or if better yields elsewhere, people might rotate out).

One notable dynamic: Because PAXG supply is directly tied to physical gold inflows, it sometimes lags behind price movements. Example: if gold price surges, interest in tokenizing might surge too, boosting supply after or during the price move. If gold crashes, some PAXG might be redeemed by those cutting losses or rotating, contracting supply. Thus, supply can be a trailing indicator of sentiment.

Another dynamic: no maximum or minimum supply beyond logical constraints. Paxos can mint until they run out of gold available to buy in the world (practically infinite for our scope – global gold is 200,000+ tons, and they have 7-8 tons backing PAXG now). Minimum supply could go to zero if all holders redeemed (in which case PAXG program would effectively end). That’s unlike Bitcoin’s fixed 21 million or even USDP where supply relates to demand for stablecoin usage. PAXG’s supply is potentially as large as the adoption of digital gold, which could be huge if say even 1% of global gold (~$130 billion) got tokenized, that’d be ~65 million PAXG. Paxos likely can scale to that theoretically by working with many vaults, etc.

Holder Distribution and Circulation: PAXG supply dynamics also consider how tokens circulate after mint. Once minted and given to a customer, that customer can trade them on secondary markets. So supply “in the wild” equals total supply minus any tokens sitting in Paxos’s issuance account (which is near zero typically). As of now, PAXG has around 41k holders addresses ( $3,356.50 | Paxos Gold (PAXG) Token Tracker | Etherscan ). The top holders (from Etherscan) include some exchange hot wallets (Binance, likely top holder, storing users’ PAXG, possibly tens of thousands of PAXG in one address) and other exchange or custodian addresses. This means a good chunk of supply is in active circulation on trading platforms, which is healthy for liquidity.

Fees and Friction Impact on Supply: The tiered creation/redemption fees might cause a tiny friction (someone with very small amounts might choose to sell on an exchange rather than redeem, to avoid 1% fee for small redemption). But for large players, 0.125% is low. Thus, generally, whenever PAXG price deviates by more than ~0.2% from gold, arbitrage kicks in to adjust supply:

• If PAXG > gold + fee, supply increases (minting).
  
  
• If PAXG < gold - fee, supply decreases (redemption). This arbitrage ensures supply and demand reach equilibrium at the peg.
  
  

No Time-based Emissions: PAXG does not have vesting schedules or unlocks to worry about. All tokens in supply were minted because someone paid full price. There’s no founder allocation or developer fund in PAXG (Paxos’s revenue comes from fees, not from holding a stash of PAXG to sell). This eliminates dilution concerns common in tokenomics of ICO projects. One could say Paxos itself might hold some PAXG inventory (like a bullion dealer holds some gold to sell later), but that would be fully backed and not dilutive – and any such inventory is small relative to supply.

Token Velocity: Because PAXG is used both as an investment and a transactional asset in DeFi, we can consider velocity (how frequently tokens change hands). It might be lower than, say, stablecoins (which are used daily for transactions) but higher than purely buy-and-hold assets. Some portion of supply sits in cold storage as long-term hold by family offices or individuals treating it like gold savings. Another portion is actively traded by speculators or arbitrage bots. On-chain volume for PAXG isn't enormous daily (~$50M on-chain which includes exchange withdrawal/deposits ( $3,356.50 | Paxos Gold (PAXG) Token Tracker | Etherscan )), but off-chain exchange volume is decent. High velocity could imply demand for more supply if traders need more float to trade, but since creation/redemption is open, liquidity adjusts.

Comparing to Alternatives: Traditional gold ETFs like GLD also have creation/redemption via authorized participants, and their share count changes with demand. PAXG is analogous but accessible to more participants (not just big banks) and more granular (1 oz vs GLD’s 1/10 oz share, though GLD creation units are 100k shares). PAXG’s advantage is frictionless fractional creation by anyone via Paxos, whereas with ETF only authorized participants can directly create/redeem large blocks. This democratization could, in theory, make PAXG’s supply respond more nimbly to retail demand.

Growth potential: If crypto adoption grows and more people diversify into gold via tokens, PAXG supply could grow significantly. Observing metrics, PAXG supply roughly tripled from early 2020 (~50k oz) to early 2023 (~210k oz) aligning with macro trends and trust in Paxos. If, for example, a large institution like a sovereign wealth fund decided to move 5% of gold reserves to tokenized form, that could cause a step change in supply. Paxos’s infrastructure can handle large one-time mints (the only delay being procurement of gold, but the London market can supply large bars quickly).

To summarize, PAXG’s supply dynamics are entirely demand-driven and robustly controlled by the mint/burn mechanism. Paxos is an active but rules-based gatekeeper of supply – they don't inject tokens unless value is received, and they destroy tokens when value leaves. For an investor, this means no surprises in inflation or deflation except those corresponding to market demand. The supply will expand as adoption grows, but each expansion correlates with more assets under custody (gold) and thus doesn’t dilute value. The design effectively eliminates any scenario of oversupply or undersupply because arbitrage and redemption keeps it aligned with market needs. This is arguably an ideal situation in tokenomics: supply is flexible but never capricious, and always asset-backed. One could call it a “responsive” tokenomic model, as opposed to algorithmic or fixed. That responsiveness is a key reason why PAXG trades reliably at the intended peg.

Fee Structure and Revenue Model

PAXG’s economic model includes a fee structure that ensures Paxos can cover costs and earn revenue, while also remaining competitive with alternative gold investment vehicles. The fee structure is transparent and has a few components:

• Creation & Redemption Fees: As documented, Paxos charges a fee whenever PAXG is created (purchased from Paxos) or destroyed (redeemed through Paxos). The fee is volume-based: smaller transactions incur a higher percentage fee, while larger ones incur a smaller percentage (PAX Gold Fees – Paxos) (PAX Gold Fees – Paxos). The schedule ranges from 1% for small trades (below ~25 PAXG) down to 0.125% for very large trades (800+ PAXG, which is $1.6M+ in gold) (PAX Gold Fees – Paxos) (PAX Gold Fees – Paxos). There’s also a minimum fee of 0.02 PAXG (i.e., 0.02 oz, about $60 at $3000/oz) for very small transactions up to 2 PAXG (PAX Gold Fees – Paxos). This prevents micro-orders from being uneconomical for Paxos to process.
  
  These fees serve a similar purpose to the premium/discount that gold dealers charge. Paxos essentially makes money like a broker or dealer: buy gold slightly below market, sell slightly above. For example, if spot gold is $2000, Paxos might effectively sell at $2020 (if 1% fee for a small buyer) or $2002.50 (if 0.125% for a whale). On redemption, likewise Paxos pays slightly less than spot to the redeemer (taking the cut).
  
  This fee model means that Paxos’s revenue from PAXG scales with transaction volume (not with passive holding). If no one ever buys or sells via Paxos (e.g., all trading is secondary market), Paxos wouldn’t earn fees from those trades (exchanges would). But typically, growth of PAXG supply means Paxos sold those tokens and earned those creation fees; likewise, if supply shrinks, Paxos likely collected redemption fees. In practice, as supply has grown overall, Paxos has monetized those inflows.

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