Physical + Bullionvault + Paxos combo primer
Posted: Thu Sep 07, 2023 10:57 am
Here are some of my notes/primer that I thought I'd share (no guarantee as to the accuracy)
One of the most liquid assets on the planet, gold is bought and sold in staggering amounts each day in trading hubs around the world. In 2020 during the height of the COVID-19 pandemic the daily gold exchange topped previous records to reach 251 million ounces of gold, worth USD 490 billion.
Loco is short for location. In the industry, ‘spot price’ is really shorthand for ‘the price of gold located in London’. Why London? Because that is where, historically, gold was traded. It is where the major bullion banks have head offices and where some pretty big vaults – and a fair amount of physical gold – is located.
If you are buying or selling with a dealer which has trading accounts with bullion banks, the spot price they are quoting is effectively a loco London price. This is essentially gold’s ‘base’ price. Paxos is a regulated blockchain infrastructure platform. Paxos uses technology to tokenize, custody, trade and settle assets. i.e.is a potential dealer/trading account to act for you.
If you open a Paxos account you can credit that using a range of choices, however we’ll keep things simple and assume that you credit the account with USD transferred from your regular bank account. For US there is no charge, for international there’s a $30 fee to both deposit and withdraw.
Once your account is credited you can buy or sell using either the platform, or via the itBit exchange. Again for simplicity we’ll assume you buy/sell directly via PaxOS. PaxOS uses the Ethereum (ERC20) network. In contrast to Bitcoin that was created as a response to government monetary manipulation and that seeks to serve as an alternative to traditional government currencies, Ethereum on the other hand was built to be a kind of operating system for any number of custom assets and programs. ERC20 is a technical standard used for smart contracts on the Ethereum blockchain.
Again for simplicity we’re just considering gold here, and for that Paxos create/destroy gold tokens called PAXG, that are backed 1:1 by physical London gold bars. When you use your Paxos account to buy PAXG there is a charge, and unlike if traded (via itBit exchange) trading hours to buy/sell PAXG are limited. Purchases and sales of PAX Gold (PAXG) are only available during London gold market hours on paxos.com (open from Sunday 6pm ET through Friday 5pm ET; closed weekdays from 5-6pm ET and applicable gold market holidays). When markets are closed, orders cannot be placed on the Paxos platform. On their interface the "Trade" tab is to trade via the itBit exchange, that is 24/7, whilst the "PAXG" tab is to trade directly. Note that it is also possible to move PAXG directly within Paxos, peer to peer. So whilst you might not be able to directly trade PAXG out of hours, you could still trade the tokens via the ItBit exchange 24/7, that doesn't require anything further as its already incorporated within the Paxos account.
The physical gold associated with each PAXG is stored in London, audited and insured and PAXG tokens are 1:1 aligned with physical gold.
Whenever PAXG tokens are sent on Ethereum network, Paxos charges a small 0.02% fee of the amount of PAXG sent on the blockchain. 0.02% on-chain transaction fees are covered by users. For example, if you want to send 10 PAXG from one Ethereum address to another, and you want to ensure that the receiver gets at least 10 PAXG after fees, you should send at least 10.0020004001 PAXG total to cover the cost of the on-chain transaction fee. If you initiated a transfer of 10 PAXG, the receiver would get 9.998 PAXG after fees.
Storage fees: Paxos does not charge gold storage fees to its customers at this time.
Creation and Destruction fees: Whenever you buy or sell PAXG from your Paxos account (on either the wallet dashboard or PAX Gold pages), Paxos charges small fees to process both the creation and destruction of PAXG tokens (see fee schedule below). This includes all sales or conversions of PAX Gold to or from USD, gold bars or unallocated gold.
There’s a sliding scale of creation/destruction fee, from 2% for less than 2 tokens, so if the price of gold is for instance $2000 then that equates to for trades of less than $4000, down to 0.125% for 800+ tokens (around $1.6M value). At the $100K+ mark 50 to less than 75 tokens, the fees are 0.5%
Costs/fees are different if you buy/sell via itBit exchange, that I ignore here other than to say that there are no creation/destruction fees, but other costs/fees instead.
There are no ongoing fees for gold storage or insurance. Zip/nada/nothing further to pay. Consider for instance I open a Paxos account, credit it with a little over $100,000 and buy $100,000 worth of PAXG tokens with that, paying $30 to initially deposit USD into the account, and a 0.5% creation fee, where in effect the PAXG tokens I buy are backed by physical gold associated to those tokens. There is no gold movement, the actual value of that gold is recorded in the Ethereum network.
Some time later I sell $100,000 of PAXG tokens, and the physical gold associated to that is released, incurring another 0.5% cost in the way of ‘destruction’ cost. I withdraw the USD, incurring a $30 withdrawal cost against that.
I don’t know for sure, but suspect that there’s the additional 0.02% on-chain transaction for each of the buy and sell trade transactions. I also don’t know of what spreads there may be reflected in the price you are quoted in order to buy/sell, I would imagine that there is a spread, but likely a pretty tight spread due to the high liquidity/volumes. As I understand it you place the order, are given a price and have a 5 second window within which to accept that.
Unlike the likes of BullionVault, where deposits/withdrawals can only be via the same bank account, with PAXG you could transfer PAXG peer to peer with another who also had a Paxos account, or sell the PAXG tokens into a alternative crypto currency that in turn could be moved to another wallet/elsewhere. You can also redeem PAXG for physical gold, but that requires holding 430+ PAXG, the equivalent of 430 ounces of gold which is the upper permitted amount of ounces of gold within a single London vaulted gold bar, and the bar can only be moved to a alternative London vault, not shipped overseas. So a pretty limited option for the typical individual investor.
For larger amounts such as $100K+ Paxos seems to start being more cost efficient than BullionVault, whereas for smaller amounts Bullionvault looks to be more competitive/better. Of the two and Paxos has the greater flexibility such as selling PAXG into other crypto currency and moving that, without having to go through your regular bank account.
My suspicions are that over time BitCoin will decline whereas Ethereum will ascend, being more technical/sophisticated and better able to handle high volumes quickly, as well as being more regulated. As I understand it there is far more effort being expended in developing the Ethereum network. Paxos it would seem are aligning themselves to that and as such are more inclined to sustain rather than falling into history.
Risks include that of anything that involves counter-parties or that is stored online. Some like to move their crypto into hard wallets, offline storage, however there are risks there also, if you lose the key you’ve lost your claim to the assets. If you write down the 12 or 24 key recovery words for if the key is lost then anyone who discovers those words can recover and steal the assets with surprising speed/ease, even if the words aren’t recorded in order. Physical in-hand gold similarly has its own risks. For Paxos I’d personally prefer the direct on-platform method rather than going via the trading desk/exchange (itBit) – as that just adds further layers of risks. As risk can never really be truly eliminated a wise choice is to diversify, perhaps some each of physical in-hand gold, Bullionvault or similar, Paxos or similar.
One of the most liquid assets on the planet, gold is bought and sold in staggering amounts each day in trading hubs around the world. In 2020 during the height of the COVID-19 pandemic the daily gold exchange topped previous records to reach 251 million ounces of gold, worth USD 490 billion.
Loco is short for location. In the industry, ‘spot price’ is really shorthand for ‘the price of gold located in London’. Why London? Because that is where, historically, gold was traded. It is where the major bullion banks have head offices and where some pretty big vaults – and a fair amount of physical gold – is located.
If you are buying or selling with a dealer which has trading accounts with bullion banks, the spot price they are quoting is effectively a loco London price. This is essentially gold’s ‘base’ price. Paxos is a regulated blockchain infrastructure platform. Paxos uses technology to tokenize, custody, trade and settle assets. i.e.is a potential dealer/trading account to act for you.
If you open a Paxos account you can credit that using a range of choices, however we’ll keep things simple and assume that you credit the account with USD transferred from your regular bank account. For US there is no charge, for international there’s a $30 fee to both deposit and withdraw.
Once your account is credited you can buy or sell using either the platform, or via the itBit exchange. Again for simplicity we’ll assume you buy/sell directly via PaxOS. PaxOS uses the Ethereum (ERC20) network. In contrast to Bitcoin that was created as a response to government monetary manipulation and that seeks to serve as an alternative to traditional government currencies, Ethereum on the other hand was built to be a kind of operating system for any number of custom assets and programs. ERC20 is a technical standard used for smart contracts on the Ethereum blockchain.
Again for simplicity we’re just considering gold here, and for that Paxos create/destroy gold tokens called PAXG, that are backed 1:1 by physical London gold bars. When you use your Paxos account to buy PAXG there is a charge, and unlike if traded (via itBit exchange) trading hours to buy/sell PAXG are limited. Purchases and sales of PAX Gold (PAXG) are only available during London gold market hours on paxos.com (open from Sunday 6pm ET through Friday 5pm ET; closed weekdays from 5-6pm ET and applicable gold market holidays). When markets are closed, orders cannot be placed on the Paxos platform. On their interface the "Trade" tab is to trade via the itBit exchange, that is 24/7, whilst the "PAXG" tab is to trade directly. Note that it is also possible to move PAXG directly within Paxos, peer to peer. So whilst you might not be able to directly trade PAXG out of hours, you could still trade the tokens via the ItBit exchange 24/7, that doesn't require anything further as its already incorporated within the Paxos account.
The physical gold associated with each PAXG is stored in London, audited and insured and PAXG tokens are 1:1 aligned with physical gold.
Whenever PAXG tokens are sent on Ethereum network, Paxos charges a small 0.02% fee of the amount of PAXG sent on the blockchain. 0.02% on-chain transaction fees are covered by users. For example, if you want to send 10 PAXG from one Ethereum address to another, and you want to ensure that the receiver gets at least 10 PAXG after fees, you should send at least 10.0020004001 PAXG total to cover the cost of the on-chain transaction fee. If you initiated a transfer of 10 PAXG, the receiver would get 9.998 PAXG after fees.
Storage fees: Paxos does not charge gold storage fees to its customers at this time.
Creation and Destruction fees: Whenever you buy or sell PAXG from your Paxos account (on either the wallet dashboard or PAX Gold pages), Paxos charges small fees to process both the creation and destruction of PAXG tokens (see fee schedule below). This includes all sales or conversions of PAX Gold to or from USD, gold bars or unallocated gold.
There’s a sliding scale of creation/destruction fee, from 2% for less than 2 tokens, so if the price of gold is for instance $2000 then that equates to for trades of less than $4000, down to 0.125% for 800+ tokens (around $1.6M value). At the $100K+ mark 50 to less than 75 tokens, the fees are 0.5%
Costs/fees are different if you buy/sell via itBit exchange, that I ignore here other than to say that there are no creation/destruction fees, but other costs/fees instead.
There are no ongoing fees for gold storage or insurance. Zip/nada/nothing further to pay. Consider for instance I open a Paxos account, credit it with a little over $100,000 and buy $100,000 worth of PAXG tokens with that, paying $30 to initially deposit USD into the account, and a 0.5% creation fee, where in effect the PAXG tokens I buy are backed by physical gold associated to those tokens. There is no gold movement, the actual value of that gold is recorded in the Ethereum network.
Some time later I sell $100,000 of PAXG tokens, and the physical gold associated to that is released, incurring another 0.5% cost in the way of ‘destruction’ cost. I withdraw the USD, incurring a $30 withdrawal cost against that.
I don’t know for sure, but suspect that there’s the additional 0.02% on-chain transaction for each of the buy and sell trade transactions. I also don’t know of what spreads there may be reflected in the price you are quoted in order to buy/sell, I would imagine that there is a spread, but likely a pretty tight spread due to the high liquidity/volumes. As I understand it you place the order, are given a price and have a 5 second window within which to accept that.
Unlike the likes of BullionVault, where deposits/withdrawals can only be via the same bank account, with PAXG you could transfer PAXG peer to peer with another who also had a Paxos account, or sell the PAXG tokens into a alternative crypto currency that in turn could be moved to another wallet/elsewhere. You can also redeem PAXG for physical gold, but that requires holding 430+ PAXG, the equivalent of 430 ounces of gold which is the upper permitted amount of ounces of gold within a single London vaulted gold bar, and the bar can only be moved to a alternative London vault, not shipped overseas. So a pretty limited option for the typical individual investor.
For larger amounts such as $100K+ Paxos seems to start being more cost efficient than BullionVault, whereas for smaller amounts Bullionvault looks to be more competitive/better. Of the two and Paxos has the greater flexibility such as selling PAXG into other crypto currency and moving that, without having to go through your regular bank account.
My suspicions are that over time BitCoin will decline whereas Ethereum will ascend, being more technical/sophisticated and better able to handle high volumes quickly, as well as being more regulated. As I understand it there is far more effort being expended in developing the Ethereum network. Paxos it would seem are aligning themselves to that and as such are more inclined to sustain rather than falling into history.
Risks include that of anything that involves counter-parties or that is stored online. Some like to move their crypto into hard wallets, offline storage, however there are risks there also, if you lose the key you’ve lost your claim to the assets. If you write down the 12 or 24 key recovery words for if the key is lost then anyone who discovers those words can recover and steal the assets with surprising speed/ease, even if the words aren’t recorded in order. Physical in-hand gold similarly has its own risks. For Paxos I’d personally prefer the direct on-platform method rather than going via the trading desk/exchange (itBit) – as that just adds further layers of risks. As risk can never really be truly eliminated a wise choice is to diversify, perhaps some each of physical in-hand gold, Bullionvault or similar, Paxos or similar.
