Gold has been one of the strongest performers of the year, but for most investors it just sits there and pays no interest. A new digital token is trying to change that — backed by real gold and designed to lend that gold to big institutions, passing a return back to holders in the form of more gold. Joining me now is Bhau Kotecha, Co-Founder of Paxos Labs. Bo, thank you for joining us.
Thanks so much for having me.
Tell us about PAX G and what you are building on top of Paxos' tokenised gold.
PAX G has been a tokenised gold token that has existed in the market for about seven years now. And now we are building on top of that and offering PAX G yields — earning a return on the gold. As we got deeper into the gold market and understood how it worked, what stood out to us was that a lot of the big institutions — the central banks, the gold refiners — they do not just sit on the gold. They actually have pretty sophisticated lending networks for the physical gold that allow them to earn a return on it. We started looking at how to make this available to our users, to people around the world, in a tokenised format. We have been working on this product for six months, just announced the launch last week, and we are very excited for the potential.
You have said this makes gold productive. What does that mean for someone used to having gold just sit in a vault?
Historically, gold has played the role of an inflation hedge, a currency hedge, a hedge against geopolitical conflict. It plays that role very well. But what we expect is that this product ends up being a superior way to stay exposed to gold because you earn additional gold on top of it. We also expect there will be a large set of investors who decide to hold this asset who previously may not have been exposed to gold at all — because this is an even more compelling asset than a traditional gold holding. We are essentially taking the complexity of the institutional commodities lending markets and abstracting that away, giving everyday investors exposure to something that enterprises and institutions have had access to for decades.
Where does the return actually come from — who is borrowing the gold and why?
We have a range of institutional borrowers. Some are looking to borrow the gold and move it between international vaults where they observe price differences. Others are refiners who want to add gold to their refinement inventory. Others are institutions wanting to increase their custodied gold to borrow against it. There is a wide range of use cases for why someone wants to borrow gold. But historically, it has just been a difficult market to break into unless you come in with the right relationships and scale.
What can tokenised gold do that a physical gold bar cannot?
When you have tokenised gold on the blockchain, that token represents an actual troy ounce of gold in an institutional vault. You are getting true ownership. But what makes it more interesting when it is tokenised is that it is easier to move and easier to use for different purposes. People are already taking their tokenised gold and borrowing cash against it in on-chain lending markets. Instead of sitting in a vault where you have ownership but not much productive utility, in the tokenised version we can build a return on the gold. We can enable PAX G to be accepted in on-chain lending markets as collateral. There is all this utility built on top of an asset as old as gold that expands the reasons why someone might hold it.
Bo, thank you so much for joining us this morning.
Thanks for having me.
