Paxos, a crypto brokerage and infrastructure platform, today announced it is now working with Chainlink to leverage its market-leading decentralized oracle network. This will boost the adoption of the USD-backed stablecoin Paxos Standard (PAX) and the gold-backed token PAX Gold (PAXG) within the Decentralized Finance (DeFi) ecosystem—a parallel financial system built on the blockchain which allows users to permissionlessly buy and sell financial products and assets without intermediaries.
The initial integration, which is now live in production, involves the launch of Chainlink-powered decentralized Price Feeds for both the PAX and PAXG tokens, providing DeFi smart contracts with a highly available, tamperproof, and accurate source of on-chain pricing data to reference when executing critical on-chain functions. Additionally, Chainlink will develop on-chain Proof of Reserve Data Feeds for Paxos assets, allowing DeFi applications to quickly verify on-chain that PAX tokens are fully backed 1:1 by US Dollars and PAXG tokens are fully backed by gold bars, both of which are held off-chain in Paxos’ custody.
By giving smart contract developers access to pre-built, easy-to-integrate, and proven Price Feed and Proof of Reserve oracle networks for both PAX and PAXG, it’s now easier than ever to support the secure and reliable use of these tokenized assets within DeFi applications. As a trusted form of collateral or payment, users now receive additional assurances that these tokenized assets are fully collateralized by real-world assets off-chain and priced at fair market values reflective of real-time conditions.
Using the Chainlink Network to Increase the Adoption of Paxos-Powered Assets in the DeFi Ecosystem
Paxos is established within DeFi through the successful launch of both PAX and PAXG, giving users on-chain access to tokenized assets fully backed by U.S. dollars and Gold in the custody of a highly regulated entity. Now it is critical to provide the key infrastructure that supports the adoption of these assets within emerging DeFi protocols, particularly as a reliable form of collateral used in lending/borrowing and derivatives, as well as a tradeable asset and trusted form of payment.
Two key components to ensure PAX and PAXG are strong forms of payment and collateral includes providing assurances that these tokenized assets are fully collateralized themselves and that they are priced on-chain at their fair market value. This allows users to trust the assets will function properly within automated DeFi products, such as receiving the correct exchange rate on trades or ensuring a collateralized loan isn’t improperly liquidated.
Since price data is generated across a variety of centralized and decentralized exchanges, and custodial data exists outside blockchain ecosystems, a piece of middleware known as a blockchain oracle is required to connect DeFi apps to off-chain APIs for aggregated price feeds and bank reserve balances.
Paxos is using Chainlink’s oracle solutions as they are secure, reliable, and flexible. Chainlink offers:
- High duality data sourced from premium APIs, leveraging modular Chainlink External Adapters that allow users to connect to any off-chain API.
- Security reviewed oracle nodes run by leading security and blockchain DevOps teams such as Deutsche Telekom subsidiary T-Systems, ensuring smart contracts always receive reliable oracle services.
- Decentralized infrastructure at both the data source and oracle node levels, providing developers with highly available and manipulation resistant data and oracle services.
- A proven mainnet solution already live in production and securing high-value contracts and assets, making it easy and safe for developers to quickly integrate Chainlink oracles into their applications.
- Blockchain agnostic oracle network, empowering the creation of oracle solutions on every blockchain where Paxos assets are supported both today and in the future.
Utilizing Chainlink’s infrastructure, the PAX and PAXG Price Feeds will provide smart contracts with on-chain price data backed by a decentralized network of security reviewed oracle nodes and sourced from off-chain data aggregators that maintain volume-adjusted market coverage across all trading environments. These Price Feeds can be integrated within a day, and are resistant to various data manipulation vulnerabilities such as the recent flash loan exploits. Additionally, the upcoming Proof of Reserve data feeds will give users more ways to verify that PAX and PAXG are fully backed by their respective real world assets.
The creation of these oracle networks gives smart contract developers access to all the external data resources required to create highly secure financial applications backed by transparent forms of tokenized collateral. This allows Paxos to play a more direct role in supporting the growth of DeFi by bridging real-world assets on-chain while retaining the guarantees users expect when it comes to security, reliability, and transparency.