USDP is the native cryptocurrency of Paxos, a stablecoin that uses the Ethereum blockchain and is issued by the Paxos Trust Company. Every Paxos dollar (USDP) token is pegged to the U.S. dollar. This means the USDP price consistently remains around the $1 level, unlike more volatile cryptocurrencies such as bitcoin and ether whose prices rise and fall frequently.
As a stablecoin, the USDP price should not deviate from $1 too much. However, in May 2021, the stablecoin hit a high of $1.52. This was around the time PayPal was rumored to be in talks about launching its own stablecoin with several potential partners, including Paxos Trust Company. It’s possible that demand for the stablecoin could’ve risen ahead of its supply, causing the stablecoin to move off its peg. This is because Ethereum transactions can settle within minutes versus bank transfers that take days to settle.
There is no supply cap for the Paxos dollar. However, the Paxos Trust Company can only issue new assets provided it has sufficient U.S. dollars in reserves at a ratio of 1:1.
All minting occurs through an Ethereum smart contract that automates the issuance and redemption process. All cash deposits held in the Paxos Trust Company reserves are secured at an FDIC-insured U.S. bank, and all bank accounts involved in the issuance and redemption of Paxos dollar (USDP) are audited by a third-party firm, Withum.
Paxos launched the original Paxos standard token on Sept. 14, 2018. In August 2021, Paxos rebranded it Paxos dollar (USDP) to more clearly identify the token as a stablecoin with its dollar peg. The USDP price has risen and fallen on several occasions, including up to $1.01 in September and down to 99 cents in October 2021.
How does Paxos dollar work?
USDP is issued on the Ethereum blockchain through the ERC-20 token standard, a set of blueprints for creating compatible fungible tokens on the Ethereum ecosystem. As a result, the USDP price stands to benefit from all upgrades coming to the Ethereum 2.0 network in the future, including the move to sharding to process a higher number of network transactions simultaneously.
It also means USDP is compatible with all smart contracts and decentralized applications (dapps) built on the Ethereum blockchain. Additionally, Paxos’ cryptocurrency brokerage platform is using Chainlink’s oracle network (another Ethereum-based platform) to broaden the adoption of Paxos dollar (USDP) within the decentralized finance (DeFi) ecosystem.
USDP is backed by U.S. Treasury bills with short maturities as a U.S. dollar equivalent.
Paxos dollar (USDP) is traded using what Paxos Trust Company refers to as “processing windows” to facilitate faster processing of conversions and fiat deposits/withdrawals every weekday and some weekend days.
Key events and management
Paxos dollar (USDP) was founded by the Paxos Trust Company – the same company behind the Paxos brokerage platform – with offices in New York, London and Singapore.
The firm has received a total of $540 million in funding from investors since its inception, including Mithril Capital, PayPal Ventures, Declaration Partners and OakHC/F.T.
Paxos Trust Company raised $3.3 million in the initial seed round on Nov. 11, 2013, and completed a $28.2 million Series A round two years later. This was followed by a $65 million Series B funding round on May 31, 2018. Between 2020 and 2021, the company managed to secure a further $442 million through Series C and D funding rounds.
In August 2021, Paxos standard became Pax dollar (USDP). Not all exchanges and cryptocurrency wallets have integrated this change fully but the USDP price functionality remains the same.