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Trustworthiness is critical to our business success at Paxos. We believe that by becoming a trusted, regulated, audited infrastructure provider , we can offer the highest levels of safety, protection and security for our clients. Weâve spent years building this oversight and regulatory stack. While many companies may claim high levels of oversight and accountability, few have the credentials required to support your long-term business needs.
Before you jump into digital assets, itâs important to understand the landscape. Below are the trustworthiness credentials that Paxos has sought and achieved. These external validators support our position as the most trusted blockchain infrastructure provider in the world.
Paxos was the first company to secure a New York State Department of Financial Services (NYDFS) Trust Charter for Digital Assets in 2015. Our Trust charter is the base layer that enables Paxos to operate in other regulatory environments because the NYDFS maintains such high standards for its regulated entities. As a Trust company, Paxos is required by the NYDFS to hold all customer assets bankruptcy remote and separate from corporate assets, so our clients know their cash, crypto and gold are always there and always in their name. Additionally, our Trust charter allows Paxos to partner with new market participants to support a Conditional License.
Paxos as a company is regulated by the NYDFS, but our products are also regulated by the NYDFSÂ . Our asset backed tokensâââPAXÂ , Binance USD and PAX Goldâââas well as the itBit by Paxos crypto exchange and our custody servicesâââare all individually regulated. While other companies may also hold trust charters, Paxosâ trust charter extends to our crypto exchange in addition to our custody services. Most competitors only have trust charters for their custody operation. We are, quite simply, held to higher levels of accountability.
Our NYDFS Trust charter on our exchange and custody services gives us the legal ability to operate in most other states. In states that do not acknowledge this authority, like Texas and Connecticut, Paxos has secured the required MTLs. With our Trust charter and MTLs, we can accept and serve customers throughout the US and in most international markets. This makes it easy for our partners to quickly offer services across the US.
In October 2019, Paxos was the first company to secure regulatory relief from the SEC to test blockchain-based equity settlement with live US stock trades. Paxos is a company that asks permission instead of begs forgiveness. We spent a significant amount of time communicating our intentions with the SEC, and they provided this regulatory âbreathing roomâ to allow us to build and test the Paxos Settlement Service with our clients.
Paxos secured its SWIFT account in 2016. This enables Paxos to access the largest messaging network for transactions between financial institutions. This powers the Paxos Settlement Service, and as more financial institutions enter crypto, SWIFT will become increasingly important to providing interoperability.
Paxos is the only crypto-native company with full access to the US Federal Reserve National Settlement Service , having received account access in 2016. The service allows Paxos to move money and settle transactions through designated master accounts at Federal Reserve Banks, providing a fiat on/off ramp for customers. As the cryptocurrency market grows, Fed NSS access will increase the speed of transactions.
Paxos was granted DTCC participant account access in 2017. Only a limited number of companies have access to the DTCC, and this status enables us to custody US securities as part of the Paxos Settlement Service. The vast majority of securities transactions in the US are settled at DTCC. Participants can use our blockchain-based settlement solution without having to adopt entirely new infrastructure by moving securities from their DTCC account to Paxosâ account.
SOC stands for System and Organization Controlsâââitâs a set of standards for operational excellence used across the financial services industry. The standards are set out by the American Institute of Certified Public Accountants (AICPA). Theyâre designed to ensure institutions implement a base level of security, technology design and control to protect their customers. Weâve been verified by third-party, independent auditors that our stablecoin, exchange and custody services meet both SOC 1 Type 2 and SOC Type 2 standards. Weâre one of the few crypto companies to achieve this designation.
Paxos has built and maintained strong relationships with a diverse number of leading global banks and custodians. The majority of companies that custody cryptocurrency sit outside of the traditional banking system, meaning they do not have USD-based bank accounts. When trillions in global transactions are settled in USD, this is problematic. Paxos, however, has numerous active accounts with some of the biggest names in the banking industry. This allows us to take deposits across currencies and asset classes while eliminating single points of failure and concentration risk. We hold USD assets in FDIC-insured, bankruptcy remote accounts and debt instruments that are expressly guaranteed by the full faith and credit of the United States government (e.g., U.S. Treasuries), ensuring client asset protection. We can easily support our clientsâ operations globally, which is a distinct advantage as the economy becomes increasingly borderless and global.
On a monthly basis, a third party independent auditor attests that every token that Paxos has issued (PAX, BUSD and PAXG) is fully collateralized by the supporting asset on a 1:1 basis. We publish those attestations monthly , constantly ensuring transparency into our operations.
As a regulated entity, we constantly have the NYDFS looking over our shoulder (that is a good thing, believe us!) and are required to have third-party, independent auditors check on us regularly. We are regularly subject to examination by the NYDFS, and independent third-party auditors routinely audit our financials and assess our controls across financial reporting, operations, compliance and information security, amongst other processes.
A company like Paxos that works across asset classes in highly regulated markets can always increase its trustworthiness further. This is a long-term investment for the company and we believe it serves as the foundation for our technology platform. Hereâs what weâre working towards in 2021:
Originally published at https://www.paxos.com on April 1, 2021.
How Paxos is the Most Trusted Operator in Digital Asset Infrastructure | Paxos was originally published in Paxos on Medium, where people are continuing the conversation by highlighting and responding to this story.
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