New Listing Proposal: PAXOS Stablecoin (PAX)

Introduction
Hi Compound community! We are Vishal Kankani and Spencer Applebaum from the Multicoin Capital team.

We are investors in Paxos through our Venture Fund and own COMP in our Hedge Fund. We would like to propose adding Paxos Standard (ticker: PAX) as a stablecoin on the Compound.finance platform.

As of 24th June 2021, as per CoinGecko:

  1. PAX is the 7th largest USD-backed stablecoin with a market capitalization of approximately $900 million.
  2. PAX ranks 5th in terms of number of global exchange listings (105).
  3. There are 4 stablecoins that have more exchange listings: USDT, USDC, DAI and TUSD—all of which are listed on Compound already.

Based on the above data, PAX seems to be the next logical choice for stablecoins on Compound.finance. We propose adding support for PAX. We welcome comments and participation in this proposal from the community.

Overview
Paxos Standard (PAX) was launched in 2018 and is a USD stablecoin that is 100% backed by U.S. dollars. Paxos issues PAX, and both the company and the token are regulated by the New York State Department of Financial Services (NYDFS). PAX tokens are minted/burned based on client demand. The process for minting and burning has been approved by the NYDFS and is regularly audited by Withum, an advisory, tax and audit firm. Full PAX attestations are completed monthly and posted to www.paxos.com/attestations.

Paxos raised $142 million in December 2020 in its Series C investment round, bringing their total funding to more than $240 million. As stated by the company, Paxos’ main 2021 goals include increasing tokenized assets under custody and trustworthiness. Paxos not only has a NYDFS state Trust charter but also is the first crypto-native company to receive preliminary conditional approval from OCC for a de novo national Trust Bank charter. Furthermore, Paxos was the first digital asset company to get SOC2 Type 2 verified for custody, exchange and stablecoin product platforms. This follows their SOC1 Type 2 certification, which was granted in December 2020. These certifications ensure users’ data is compliant with their company policies, controls and regulatory requirements.

PAX Adoption Across DeFi and CeFi
PAX is included in MakerDAO’s pool and is available for trading on DeFi Apps, including Curve and Uniswap. It is used for lending and borrowing on known CeFi institutions such as BlockFi and Celsius. Additionally, it is traded on many centralized exchanges, including but not limited to Binance, Bitfinex, Bitstamp, Huobi Global, and OKEx. PAX daily traded volumes are greater than USD $50 million across CeFi & DeFi.

Proposal
We would like to extend PAX’s functionality in the DeFi space through listing on Compound.finance. We believe adding PAX to Compound.finance will provide users a trustworthy alternative crypto asset to post collateral and borrow. PAX is an excellent source of collateral because it is one of the most reliable, regulated stablecoins. PAX is valuable to borrow due to its trustworthiness and range of use cases, including store-of-value, settlement, collateral, trading, and peer-to-peer transfer.

Today, nearly 75% of the crypto assets deposited into Compound.finance are fiat-backed stablecoins, stablecoins partially backed by other fiat-backed stablecoins, and centrally wrapped BTC. Adding PAX diversifies Compound.finance’s exposure to any one centralized token issuer, while at the same time adding functionality and utility for a very trusted asset in the ecosystem. It would further diversify the menu of centralized stablecoins and stablecoins with differentiated utility on Compound.

We welcome comments and participation in this proposal from the community.

Price Feed Mechanism & Other Parameters
Currently, PAX is traded on Uniswap and Curve and we could use those price feeds. Also, if there are concerns around the daily traded volumes on these specific venues, we could start with a 0 collateral factor to mitigate short term concerns. An alternate approach would be to peg it to USDC as these two assets come with a very high level of assurances.

Initial Parameters (Open to suggestions)

  1. Collateral Factor: 0-25%
  2. Reserve Factor: 20-30%
  3. COMP Speed: None
  4. Borrow Cap: 80% of supply
  5. Supply Cap: None
  6. Price Feed ideas: Uniswap and/or Curve OR Peg to USDC
  7. Interest Rate Models: USDC

Market data

  1. Market Cap: ~$900 million
  2. 24hr trading volume: $50 - $100 million
  3. Exchanges: Binance, itBit, Bitfinex, Coinsbit, Atomars, etc

Relevant Links

  1. Website

  2. Whitepaper

  3. Github

  4. Company

  5. Twitter

  6. Audits

  7. Smart Contract

  8. SOC 2 Type

  9. Attestations

  10. Ethereum Addresses Contracts

8 Likes

As a general matter, Compound benefits from having as many legitimate markets as possible. It increases the number of markets supported by Compound, grows its reserves, and makes it a more competitive product in the marketplace.

In short, I’m very much in favor of adding PAX with a 0% collateral factor to start with. Good proposal @kankanivishal!

2 Likes

pm me or @TylerEther lets get this done

1 Like

We should do this. Also, I think we should include collateral factor in initial proposal - it’s most regulated and trusted stablecoin on the market (NYDFS, OCC, SOCII, etc). Has potential to be big amongst institutions especially

2 Likes

I’ve spoken with Spencer Applebaum from Multicoin Capital and I am in support of this proposal.

PAX is one of the most regulated stablecoin around being regulated by the New York State Department of Financial Services (“NYDFS”). This has the following benefits (taken from here):

  • The value of each stablecoin token is tied directly to the value of the US dollar, and the amount of “reserve” dollars equal or exceed the number of stablecoins outstanding.
  • Regulators are overseeing the establishment and maintenance of reserves backing the stablecoins.
  • Reserves may only be held in the safest forms, such as FDIC-insured bank accounts and in short-term maturity US Treasury instruments.
  • Reserves are fully segregated from corporate assets, specifically for the benefit of token holders, and are held bankruptcy remote pursuant to the New York Banking Law.

We compare the breakdowns of PAX vs. other stablecoins:

The underlying assets of PAX are much more liquid and stable compared to USDC and even more so than USDT.

I argue that the price of PAX will hold to a 1:1 ratio against the US dollar much better than USDC or USDT which are both listed on Compound for the reason of being strictly regulated by the NYDFS.

I’ve also gone ahead and looked into the smart contract code and its audits which all seem fine.

The first version of the PAX contract (upgradable contract) was audited 3 times and those audits can be found here: https://github.com/paxosglobal/paxos-gold-contract/tree/master/audit-reports/pax-audits.

Although the second (latest) version of the contract hasn’t been audited, the contract format is based on PAXG which has been audited twice: https://github.com/paxosglobal/paxos-gold-contract/tree/master/audit-reports/paxg-audits.

I’ve also asked about how the owner account of the contract is secured to which Spencer replied that it’s secured via a multisig contract: https://www.paxos.com/simple-multisig-how-it-works-and-why-its-awesome/.

All-in-all, PAX seems like a very strong stablecoin to add to Compound.

What are everyone’s thoughts on starting off with a conservative 10% collateral factor?

1 Like

Deployment

npx saddle -n mainnet script token:deploy '{
  "underlying": "0x8E870D67F660D95d5be530380D0eC0bd388289E1",
  "comptroller": "$Comptroller",
  "interestRateModel": "0xFB564da37B41b2F6B6EDcc3e56FbF523bD9F2012",
  "initialExchangeRateMantissa": "2.0e26",
  "name": "Compound Paxos Standard",
  "symbol": "cPAX",
  "decimals": "8",
  "admin": "$Timelock",
  "implementation": "0xa035b9e130F2B1AedC733eEFb1C67Ba4c503491F",
  "becomeImplementationData": "0x"
}'

Interest rate model: same as cTUSD, cUSDT, and cDAI
Implementation: same as cTUSD, cUSDT, and cDAI

Definitely not. We have a pretty clear precedent of starting with 0% collateral factors. Additionally, there is massive risk from the centralization here which must be accounted for.

6 Likes

Deployment looks good.

Separate note: start the collateral factor at 0.

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The collateral factor will start at 0, as is standard. Thanks for the input @getty and @arr00.

2 Likes

cPAX deployed to 0x3cDb0115b5CCd1D5Cb631c2946Abf55816Ad61a2.

npx saddle match 0x3cDb0115b5CCd1D5Cb631c2946Abf55816Ad61a2 CErc20Delegator 0x8E870D67F660D95d5be530380D0eC0bd388289E1 0x3d9819210a31b4961b30ef54be2aed79b9c9cd3b 0xFB564da37B41b2F6B6EDcc3e56FbF523bD9F2012 200000000000000000000000000 "Compound Paxos Standard" cPAX 8 0x6d903f6003cca6255d85cca4d3b5e5146dc33925 0xa035b9e130f2b1aedc733eefb1c67ba4c503491f "0x" -n mainnet
2 Likes

my man, so happy to see this progress. May we walk forth towards the horizons with delight.

1 Like

What are the next steps regarding this proposal? Has there been a vote yet? thx