Pax Dollar (USDP)
Pax Dollar (USDP) is a stablecoin that operates as an ERC-20 token, backed on a 1:1 basis by the US dollar. It is issued and managed by Paxos, a company known for its expertise in blockchain-based digital assets.
Paxos
Paxos is the company responsible for the creation and management of USDP. Initially established as iBit in 2012 by Charles Cascarilla and Rich Teo, Paxos Trust Company, LLC has grown to include notable figures such as Bill Bradley and Sheila Bair. After receiving regulatory approval from the New York State Department of Financial Services, Paxos entered the U.S. market and launched USDP in May 2015.
| Ticker | USDP |
| Category | Stablecoins |
| Website | https://www.paxos.com/standard/ |
| @PaxosGlobal | |
| Contract Addresses | |
|---|---|
| ethereum | 0x8e...e1 Copied! |
| solana | HV...tMCopied! |
The inspiration behind Paxos
The name "Paxos" draws inspiration from a legislative consensus system used on the Greek island of Paxos. This system inspired the founders to develop Paxos's stablecoin, which eventually became known as Pax Dollar or USDP.
Regulatory considerations
In February 2023, the New York Department of Financial Services (NYDFS) began an investigation into Paxos. The department's main focus is on consumer protection in the cryptocurrency market. Around the same time, the United States Securities and Exchange Commission issued a Wells Notice to Paxos, indicating a planned enforcement action regarding Binance USD. A spokesperson from Binance clarified that BUSD is a product issued by Paxos, with Binance licensing its brand for use. The spokesperson emphasized the importance of stablecoins in providing a safety net for investors.
How USDP functions
The USDP coin is fully regulated and backed by cash reserves. These reserves are held in accounts at insured depository institutions in the United States, consisting of cash equivalents like US Treasury Bills and overnight repurchase agreements. This setup ensures liquidity and ease of conversion to USD.
Paxos Trust Company, LLC has the sole authority to issue USDP tokens, creating them in exchange for USD deposits. When a user deposits at least 100 USD, the Paxos smart contract mints an equivalent number of USDP tokens without fees. These tokens can be converted back to USD, with the tokens being burned to maintain stability.
USDP and MakerDAO partnership
Proposal to MakerDAO
In January 2023, Paxos proposed a collaboration with MakerDAO, the organization behind the DAI stablecoin. The proposal involved Paxos paying a fee for holding up to $1.5 billion of USDP in Maker's reserves. Paxos suggested increasing the debt ceiling for USDP from $450 million to $1.5 billion within Maker's Peg Stability Module reserve system. The proposal also included a daily marketing fee tied to the Effective Federal Funds Rate, applicable if the debt ceiling reached $1.5 billion. Paxos estimated that this arrangement could generate approximately $29 million annually for Maker. The MakerDAO community discussed and voted on the proposal to determine its outcome.