Bank of America to join Paxos to build crypto infrastructure giant

Bank of America, the second-largest bank in the USA, has joined Paxos’s Blockchain-based settlement network for equities. The bank made this move to settle stock trades in minutes rather than days by using Blockchain.

Bank of America, the second-largest bank in the USA, has joined Paxos’s Blockchain-based settlement network for equities. The bank made this move to settle stock trades in minutes rather than days by using Blockchain.

Bank of America, the second-largest bank in the USA, has joined Paxos’s Blockchain-based settlement network for equities. The bank made this move to settle stock trades in minutes rather than days by using Blockchain. Paxos, after being allowed by the Securities and Exchange Commission to begin a pilot program to settle equity trades in 2019, launched its network in Feb 2020. Paxos’s solution is a private, licensed Blockchain network that permits two parties to settle trades with each other on the same day. Paxos has plans to apply for a clearing agency registration with the SEC. Once approved, Bank of America wouldn’t have to restrict to volume and number of trades that they can settle through Paxos Network. With the adoption of Paxos settlement, Bank of America is marked as the latest Wall Street giant to join Blockchain projects with the aim to reduce the curve of trading operations’ time and cost.

Paxos is one of the systems where banks consume the Blockchain technology to reshape the way bank interacts with the market. As of now, Paxos differs from Depository Trust & Clearing Corporation (DTCC) in terms of settlement cycle where DTCC generally allows settlement of T2 and T+0 along with the same day settlement only for those trades that occur before 11 am ET which nearly misses about 75% of all stocks traded on a given day. Although DTCC plans to launch T+1 by 2023 with the aim to shorten the settlement cycle it won’t come even close to Paxo’s no-action relief offerings. With Paxos’s T+0 settlement cycle, the Bank of America can free up the collateral that they’d have to post on an overnight basis, which would ultimately pin down the challenge of return-on-assets in the business.

The current scenario takes a two-day settlement cycle in which the money from sellers to buyers is stuck in the market’s plumbing. This is equivalent to relative eternity given that trade can happen in milliseconds. To improve the current scenes at the bank trading, pushing Blockchain acceptance in banking as well as other industries is the key for the technology to make the grade. The Paxos system, using a version of Ethereum Blockchain, connects investors directly to achieve a same-day settlement.

Paxos Take to Building Crypto Infrastructure Giant

Later in April, Paxos upraised a $300 million Series D funding cycle led by Oak HC/FT, taking its net value at $2.4 billion. The company has been working on its aim to build infrastructure and white-label services for organizational clients who wish to offer cryptocurrency products to their customers. After partnering with PayPal for its cryptocurrency features, it has given PayPal customers the liberty to buy, hold, and sell crypto-assets like Bitcoin, Ethereum, Litecoin, etc. One of the subsidiaries of PayPal, Venmo has also added the same cryptocurrency features in the April end.

Investors raised the fund after evaluation of the Declaration Partners, PayPal Ventures, Mithril Capital, Senator Investment Group, Liberty City Ventures, and WestCap. Paxos which used to offer products/ services like crypto trading and settlement, custody, and the ability to issues tokens has now strengthened the backbone of its offerings. Paxos has been focusing on the bigger fishes like Revolut, Credit Suisse, Stone X, and Societe Generale.

Paxos has always tried to be as amenable as possible. It seems to have pledged to remain committed to the regulations across various geographies. Paxos aims to launch Paxos National Trust Bank alongside applying for a Clearing Agency Registration with the SEC in the US. Apart from this, the company extends its plan to Singapore by applying for a Major Payment Institution License. These measures have been taken under Paxos’s plans to foster partnerships with enterprise clients who are looking for safer cryptocurrency opportunities.

Paxos joins the clan of popular stablecoins alongside Tether and USDC by launching its stablecoin named Paxos Standard (PAX). Stablecoins are crypto assets like BTC or ETH. The only difference is the value of PAX is indexed in USD. Apart from launching its stablecoin, Paxos also lets other brands issue their stablecoin. For instance, Binance, which has worked with Paxos, issued BUSD on its platform. One BUSD is also worth one USD.

Other than being known for its shorter settlement cycle, Paxos is also known for PAX Gold which is a digital asset backed by physical gold. Pax Gold is considered to be more efficient than its counter asset gold EFTs because it lives on the Ethereum Blockchain.

Other than all of this, Paxos also has its cryptocurrency exchange, itBit which only features a handful of trading pairs. It is not meant to be a consumer-facing exchange, but it powers Paxos’ other products.

The Bottom Line

Bank of America, the second-biggest bank in the US, stands at third to try Paxos network for stock exchange. The bank’s swoop on Blockchain for stock clearing was awaited due to the lagging in the settlement time for stock clearing. The technology promises to bring down the time for stock clearing from days to minutes.

A two-day long period required to clear trade and finalize all the paperwork at DTCC has been brought down to the same day settlement with Paxos network. The lag in the settlement time was the prime reason for the price meltdown. The companies/ clients were asked by DTCC to pay the collateral for the dropped price during the time gap when a trade occurred and when settlement took place. Same-day settlement via Blockchain technology made such demands unnecessary. Bank of America, with its initiative of moving to Paxos Network, put forward the pathetic, under-pressure condition of the traditional stock trading infrastructure. It also focuses on how firms like Paxos are working to remake the financial plumbing that powers Wall Street.

Despite being short of Paxos offerings, DTCC is not going anywhere, since stock settlement and clearing are highly regulated tasks that require approval from SEC to make any big changes. But in the long run, Blockchain is expected to slash down traditional institutions.

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