What Is USDP? | PAX Dollar Review | Notum

To date, there are a lot of stablecoins on the crypto market, which is why users and investors are confused about which asset to choose for their operations. While there is a lot of controversy surrounding the most capitalized stablecoin concerning the reliability of the project itself, Paxos is ready to confirm that all user funds are safe and under the authorities’ regulation. Therefore, we suggest you study the Pax Dollar (USDP) project and find out why this stablecoin can stand neck to neck with Tether.

What Is $USDP?

USDP is a fiat-backed stablecoin, each unit equal to one US dollar. This stablecoin was launched by the Paxos Trust Company in 2018. USDP is released on the Ethereum blockchain and is an ERC20 standard token. A distinctive feature of Paxos is that the company’s activities are regulated by the New York State Department of Financial Services: they are audited monthly and prove that all coins are 100% backed. Moreover, the developers claim (and the audit confirms) that all USDP reserves are stored in fiat currency and equivalents. The project’s founders believe this is the only proper method of maintaining the transparency of transactions and ensuring security for the client. In this context, the project team opposes USDP to the dominant competitors in the market: USDT and USDC. Furthermore, the Paxos team conducted extensive research. As a result, it concluded that the main problem of fiat-collateralized stablecoins is that their reserves store a large percentage of non-cash financial instruments (securities, precious metals, etc.), which causes liquidity problems. 

In the official article of the company, the project’s representative emphasizes that investors need to understand the difference between a license, registration, and regulation. So, the article’s author points out that USDP, like USDC and USDT, is registered with FinCEN. At the same time, USDC also has a license, but only USDP is a regulated stablecoin. Stablecoins that do not have an external regulator to guarantee sufficient security have high monetary and consumer risks. In addition, issuers of non-regulated stablecoins are primarily interested in generating income and not in maintaining stable reserves and customer safety.

Licensing VS Registration VS Regulation

A license to transfer funds only means that the issuer must follow the laws of a particular jurisdiction when providing its services. For example, this is the situation of Circle, which issues USDC. At the same time, in this case, this does not mean that the regulator oversees the maintenance of reserves by the stablecoins themselves. With this approach, the issuer can dispose of reserves at its discretion.

Registration of the issuing organization also does not mean control and regulation. So both Circle and Tether report to The Financial Crimes Enforcement Network (FinCEN). However, FinCEN does not oblige the collateralizing of stablecoins with 1-to-1 currency reserves. Such registration only speaks about the legality of business and support for the fight against financial fraud and money laundering (AML).

Regulation means that tokens and their reserves are checked and independently audited. This guarantees transparency and security. This is the path chosen by the Paxos project.

How Does USDP Work?

The essence is about the same as in the case with other fiat-collateralized stablecoins. The step-by-step process looks like this:

• First, the user registers an account and passes the KYC/AML process.
• The user transfers USD to the bank account of the Paxos Trust Company.
• Paxos issues USDP in a ratio of 1 to 1.
• The user remains the rightful owner of his fiat funds since Paxos has no right to dispose of them.

During the reverse conversion, users redeem their USD in exchange for USDP. After that, tokens are burned and are no longer in circulation.

USDP Benefits

The main characteristics and advantages of the Pax Dollar crypto:

• The issuer of the USDP is the Paxos Trust Company. It operates on the principle of a trust fund and does not involve intermediaries. Due to this, the speed of transactions increases. In particular, the exchange time of cryptocurrencies for an equivalent amount in USD and commission fees are reduced.
• All owners of wallets that support the ERC20 standard can make a transfer or receive tokens. Transactions are carried out according to the rules prescribed in smart contracts. This eliminates the human factor and the risk of error.
• The coin is traded on various centralized and decentralized exchanges. In addition, it pairs with dozens of popular cryptocurrencies.
• Direct cashing can be carried out through the native exchange, itBit. This is a secure platform whose activities are regulated by the New York Department of Financial Services (DFS).
• Settlements with stablecoin are available 24/7, while transactions with fiat are often limited by the working hours of financial institutions. At the same time, the asset can be moved anywhere worldwide.
• As part of the Ethereum ecosystem, the token can participate in the development of the global community, including being used on partner platforms. Its functionality is expanding as new dApps, and decentralized finance (DeFi) projects are added.
• As a trust company, Paxos was launched and operated following the laws relating to the activities of banks in the state of New York. Its activities are regulated by the Financial Services Department of the region. Accordingly, it is subject to all principles, rules, and standards, ensuring the safety and observance of investors’ rights.
• Unlike banks, a trust company does not use customer funds to benefit. All reserves are kept in isolation and are not used for various operations, for example, loans.

Use Cases

The developers believe that as the digital asset space expands, the number of ways to use stablecoins will grow. Initially laid down, basic use cases:

• Risk hedging. Investors and traders can convert fiat/cryptocurrencies into stablecoin during periods of high volatility and instability in the market. This is more profitable than converting un-collateralized coins into regular USD, as this is fraught with high fees.
• Conducting complex transactions with coins. A coin built based on Ethereum smart contracts can be used within a large ecosystem of cryptocurrencies. It creates dozens of pairs and reduces the risk of volatility.
• Cash settlements for companies, institutions, and individuals. Operations can be performed 24/7.
• An alternative to high-volatile coins. Exchanges can offer a stablecoin to their participants. For example, BUSD stablecoin was issued in partnership with Paxos.
• A tool for passive income. Exchanges and protocols launch programs with an annual return for locking coins.
• Means of payment in partner projects. It can be used in dApps, and DeFi on the Ethereum network.