Name: Balancing the Ledger: Paxos Will Potentially Tokenize Stocks and Precious Metals In 2019
Uploaded: 2019-03-11
Duration: 10 min 11 s
Description: Cofounder and CEO Chad Cascarilla says Paxos is trying to 'solve how assets move.'

[ MUSIC ] Welcome to Balancing the Ledger, where tech and finance intersect. I'm Jeff Roberts. And I'm Jen Wieczner. Today we're delighted to welcome Chad Cascarilla, the CEO and founder of Paxos. Great to be here, thank you. Well thank you for joining us Chad. I think most people know Paxos for your stable coin, but your company's a lot more than that. Do you wanna give us a quick rundown of what you guys do? Yeah, sure. So Paxos is quite unique. We're the first trust company that was chartered to operate in cypto. And at the same time, so that means we're a financial institution. But at the same time, we're also very much technology and product company that's about half the employees of the company. So we're very much trying to marry being a financial institution with being a technology firm. And the point of that marriage is to help solve how assets move, to try and move them more efficiently, to help move them more safely. And to take them and put them into a blockchain. So we do that in native crypto assets, but we also do it with cash. We have a stable coin, we also are doing that in precious metals in the commodity sector. And then lastly We're doing it in securities. So any type of asset, and put it into a blockchain, and solve these types of problems for people. You could potentially be the first company to actually put stocks on a blockchain, where we'd have crypto backed equities? Absolutely. We're We're actually the only firm that has a participant account at the DTC in the crypto space. That's where all the stocks and bonds are held in the US. And so we've been working on a variety of initiatives in securities. We have a full account at the Federal Reserve national settlement system which allows us to move cash at the Fed. We also have a four account at the swift network to be able to move financial services messages. And so we spend a lot of time getting not just the trust company but a variety of other regulatory approvals that allow. Allow us to be able to move other types of assets, and touch where those assets currently sit. And, so, stocks and bonds are a perfect example of some asset classes that we're spending a lot of time working on right now. How far away is that? How soon could it happen? I think I think that's something that could happen this year. I think 2019's gonna be a big year for us, we're working on initiatives in they commodities space, we're working on initiatives for private securities, STOs, as they're called now, and certainly in some public securities as well. So you need regulatory approval, so it's a work in progress. But I think we're getting pretty close, I think we'll see it in 2019. And go into the precious metals, because I think a lot of people like hearing about gold and silver. So you do the same thing as you did with the stablecoin. You get a vault of gold and a vault of silver, and then issue tokens of those on the blockchain. And that would correspond to, so many ounces of gold? Yeah, I think that's exactly how it would work. And part of the reason we're excited by it is, we've been in the precious metals space now for over three years, trying to think about how tokenizing commodities, and tokenizing precious metals can change the way in which a physical asset is able to be able to be moved in a digital way, on a blockchain. And some of the problems in the physical asset space is how can you make it divisible? How can you make it more transportable? How can you be able to more efficiently lend it out? And how can you do it in a way that you know you own it? And so having it sit in a vault, but also have it be on a blockchain kind of bridges those two worlds. And how far away are we from having gold coin or silver coin for sale? It's something we're working on as well, so I think it's something we'll see definitely this year. We're excited about the concept of being able to take a commodity, and I think precious metals are really obvious ones, and gold is probably the most obvious, and being able to tokenize it. We've been working on this a long time And we have a number of clients we're working on it with. So I think we're gonna announce some partnerships and how we're gonna push this forward but we don't have a set date yet. The way that it works for commodities, would it work similarly for stocks? I mean, or how different would it be from the current way that we trade stocks now? Yeah, so Part of the advantage of having a trust company is one, you're regulated and you're regulated like a bank. But unlike a bank we can't do any lending of client assets, it's completely segregated. And so by being a bank and being and being a financial institution we can hook into where assets are held now. So you can hook into where stocks and bonds sit. And you can hook into vaults around the world. You can hook into the Federal Reserve. And in order to put something in a blockchain, you have to make sure you have the right amount of inventory in the real world versus what's in the blockchain. And so. How you do it with a gold token is how much gold do you have in a vault equals how many gold tokens outstanding. How do you do it with stocks? How many stocks do I have sitting in an account equals how many stocks in the blockchain. And the same thing you would do with private securities. Here's how many private securities that exist and this is how I put it into a blockchain. And what's unique about Paxos with this financial institution architecture is we can sit here and hold assets in the real world, and enable them to also exist in the blockchain world in a way that you can really trust. Have you tested it? Do you know that it works? Yes. Your stable coin, Paxos Standard I think launched almost exactly six months ago now. It's a dollar- backed stable coin, like Tether, which is the leading and the original stable coin. How is PAXOS Standard different from Tether? Yeah, so I think it's different in four or five important ways. The first is it's on a theorem, and Tether's on Omni. So being on a theorem means it's easier for everyone to use it because that's where most other tokens are also sitting. The second thing is, we're fully audited. So all of our dollars are audited, and we know are sitting our bank account, and they equal the tokens that exist. So that's a pretty big difference. The third thing is that we've been approved by a regulator. So, when we formed a trust company, this was a complex process of basically forming a near bank like institution, Every time we launch a new product, it had to be approved by a regular. New application is put into place. So our regular not only approved the product but they also still oversee it. So this is highly regulated, it's audited. It's on a theorum. And the last couple points is there are no fees to redeye. There's no fees to create, there are no limits, an irredemption process. So this is easily turned into cash, whenever you'd like. And so, that's a really big deal. You wanna know, hey if I'm gonna, Put dollars into something, I can get the dollars back out, needs to be very fungible. And so that's a lot different than Tether. And that's a lot different than really all the other staple coins out there. And that's why we created it because We wanted to make something that could be a piece of the financial infrastructure on blockchain systems. Yet in terms of adoption, though, Paxos seemed to have some volume. But there was definitely some press about both Gemini and Paxos basically issuing rebates, to encourage the OTC trade among the volume. some of the press was saying was a result of these rebates, and people through seeking arbitrage opportunities. Is that ongoing or was that to kind of kick start these? Yeah, I'm not exactly sure what others have done. We've done different ways of incentivzing participants to start to use packs, but when you look at how much trading is happing now this is really all independent trading. There's A system that we've set up, amongst a variety of exchanges where we're now base pairs where participants can take Pax dollars, be able to trade them in a liquid way. If you look at what Paxos trades at, it's one dollar. It's not trading at a Discount, so I think that tells you right away, if there was a lot of discounts being given out, then it would be trading below $ 1, and it's not. You can buy it at $ 1, you can sell it at $ 1 in the market, and you can do that with us to redeem it. So you wanna get people to start using it. So you do a lot of types of marketing promotions. But at the end of the day, it's a $ 1 coin, and it's $ 1 backing it. I'm wondering at what point Paxos and other stable coin issuers are gonna have to start paying interest. Cuz if I'd go and buy 100 of your stable coins, I could take that money and get 2. 5 % in a savings account Right now, and presumably you can too with the money I give you. Is something going to change? Are we going to see interest paid on these soon ?>> Yes, well, there's a couple of things. I think partly it depends on the level of interest rates. I think if you have small dollar amounts you're probably not getting very much interest at your bank right now. So you're probably not foregoing that much interest. But I do agree, I mean, if you have large balances and you're sophisticated you can earn a much higher interest rate. There starts to become security law issues when you start to give interest out because part of the advantage of stablecoin is that it's not a security. It's $ 1 equals one coin. There's no price appreciation that you would expect from holding it. When you start to add in interest rates and potential interest being paid, you can cross over into the world of security. It doesn't mean you necessarily do, but you can, so I think that's gonna be something that would be done, I think, maybe more slowly than people are talking about. doesn't mean that it won't happen, but I'd say it's not obvious that you can just go and do it. If you're holding 100 % of the reserves of the stablecoin though, do you collect interest on it yourself? Yeah, that's how we make money. So we're not charging transaction fees, we're not charging curate fees, we're not charing redeem fees. So we're earning interest. If you look at $ 100, 000, 000 outstanding, you could make a couple million dollars of interest, so you're not exactly Pulling in enormous amounts of fees from holding people's cash but you are giving them something that's easily redeemable, is available 24 / 7 days a week, is programmable. So there's a lot of features you get that are beyond what you would get if your cash was sitting in a bank And you probably aren't earning that much interest in the bank. So, it doesn't meant that interest isn't something that people think about. But, really, we try to point to what's all the functionality you get by having your cash on a block chain. Chad, thanks for joining us. Yeah, thanks for having me. I'm Jeff Roberts. And I'm Jen Wieczner. And for more Balancing the Ledger, come to Fortune. com. We'll see you next time.

Balancing the Ledger: Paxos Will Potentially Tokenize Stocks and Precious Metals In 2019

Finance

Cofounder and CEO Chad Cascarilla says Paxos is trying to "solve how assets move."