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. We’ve 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, it’s 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.
New York Department of Financial Services Trust Charter
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.
NYDFS Regulated Tokens (PAX, BUSD, PAXG), Exchange (itBit by Paxos) and Custody Services
Paxos as a company is regulated by the NYDFS, but our products are also regulated by the NYDFS. Our asset backed tokens – PAX Standard, Binance USD and PAX Gold – as well as the itBit by Paxos crypto exchange and our custody services – are all individually regulated. While other companies may also hold trust charters, Paxos’ 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.
State-Level Money Transmitter Licenses
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.
Securities and Exchange Commission No Action Letter
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 “breathing room” to allow us to build and test the Paxos Settlement Service with our clients.
Full Messenger Access to SWIFT
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.
Access to the Federal Reserve National Settlement Service
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.
Depository Trust Clearing Corporation Participant Account
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 Paxos’ account.
SOC 1 Type 2 & SOC 2 Type 2 Verified
SOC stands for System and Organization Controls – it’s 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). They’re designed to ensure institutions implement a base level of security, technology design and control to protect their customers. We’ve been verified by third-party, independent auditors that our stablecoin, exchange and custody services meet both SOC 1 Type 2 and SOC 2 Type 2 standards. We’re one of the few crypto companies to achieve this designation.
Top-Tier Bank Accounts Supporting Operations Across US Dollars and Gold
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 clients’ operations globally, which is a distinct advantage as the economy becomes increasingly borderless and global.
Monthly Token Attestations
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.
Audits of our Operations & Yearly Audits of our Finances
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.
What is Ahead in 2021?
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. Here’s what we’re working towards in 2021:
- Application for a National Trust Bank Charter from the Office of the Comptroller of the Currency: This is the highest level of bank oversight available in the US. It would allow Paxos the ability to operate across the US under a unified set of federally recognized banking laws.
- Application for a Clearing Agency Registration (CA-1) with the SEC: A CA-1 license will allow Paxos to tokenize US equities and settle trades without restriction. If granted, Paxos would become only the second active clearing agency in the US stock market.
- Application for a Major Payment Institution License from the Monetary Authority of Singapore: This application, filed pursuant to Singapore’s new Payment Services Act licensing framework, would enhance Paxos’ regulatory oversight in Singapore, the gateway to Asian markets.
- Ongoing dialogue with regulators at all levels: By continuously meeting and discussing with regulators – whether the SEC, CFTC, Treasury or Congress in the US, or the Financial Stability Board or international regulators around the world – Paxos is able to create new opportunities and stay connected with shifts in the landscape. In the beginning of 2021, we sent a comment letter to the Financial Crimes Enforcement Network of the US Treasury stating our position on a proposed rule. Our CEO & Co-Founder Charles Cascarilla has testified to Congress. While we do not announce all discussions we conduct, we’re in touch with state, federal and international regulators at all levels. The regulatory environment surrounding digital assets is evolving, and Paxos considers it both a business responsibility and a civic duty to help inform these conversations.