Paxos says dollar-backed tokens will lead real-world usage

Paxos says that most of the attention around asset tokenization has overlooked a central issue: the absence of a reliable digital dollar. The company maintains that until the dollar can move natively on blockchain networks, attempts to put gold, property or other assets on the chain will run into the same settlement obstacles seen in traditional finance.

Ronak Daya, who oversees products at Paxos, outlined the company’s position in an interview with TheStreet Roundtable. He said many new tokenization projects assume that payments and collateral can move at the same speed as the digital asset itself, which is often not the case.

Dollar tokens in practice

A dollar token functions as a digital representation of a US dollar and can be redeemed at par. It is issued by a regulated company and is backed by cash and short-term US government debt.
The appeal, Daya said, is that these tokens can move across blockchain networks without relying on the banking system’s clearing schedules or deadlines.

That speed is being tested in several practical environments. Cross-border transfers that typically take a day or more can be settled in minutes. Trading venues can move customer funds between platforms without the delays associated with ACH or wire transfers. And companies that handle high volumes of transactions can reduce the time spent reconciling records across multiple systems.

First experiments on Paxos

Paxos entered the sector long before the current wave of tokenization projects.
The Pax Dollar, launched in 2018, offered a regulated way to move dollars on-chain. A year later, the company introduced Pax Gold, which represents ownership of vaulted gold rather than exposure to the price of a commodity.

The gold token, Daya said, demonstrated that a high-value asset held in custody can be transferred digitally without altering the way the underlying metal is stored. That work helped institutions understand how a tokenized instrument can coexist with traditional controls.

Since then, several companies have started small pilot programs involving tokenized money market funds and deposit products in regions where regulators have established clear rules for on-chain financial instruments.

When tokenization adds value

Daya said tokenization is most useful in markets where existing processes are slow or require multiple layers of intermediaries. International payments, settlement between trading venues, and transactions that rely on end-of-day reconciliation fall into that category.

In markets that already clear quickly or operate with modern infrastructure, he said, issuing a token does not significantly improve results.

Conditions necessary for wider use

Daya added that creating a token is rarely the hard part. The biggest hurdle is building the operational framework that allows banks, brokers, custodians and payments companies to use the token within their existing systems. Transfers must be recorded consistently, balances must be safeguarded and regulators must be able to verify how the instrument is managed.

Until those measures are adopted, he said, tokenized assets will remain limited to controlled testing rather than large-scale commercial activities.

Why Paxos focuses its work on the dollar

While several types of assets may eventually move to digital networks, Paxos believes the dollar should come first because it underpins the majority of settlement flows. If the dollar cannot move at the same speed as the tokenized asset linked to it, the process ends up reverting to slower legacy lanes.

Daya said a trusted on-chain dollar would provide a common settlement method for multiple tokenized instruments. Without it, each product must rely on its own solution to complete transactions, reducing the benefit of using digital rails in the first place.

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