One diagram to understand: Isn't PAXG 1:1 pegged to gold? Why did it unpeg?

$PAXG This wave of the Heaven and Earth Needle directly staged a double kill for both bulls and bears, with high-leverage players losing millions of dollars overnight. Many entered the market due to the safe-haven reputation of digital gold, only to suffer a significant setback.

Is PAXG really 1:1 pegged to gold? Where are the risks hidden?

1. First, understand: What is PAXG? Can it really be used like gold?
PAXG: It is an ERC-20 token issued by Paxos in 2019, with one core point: it claims to be 1:1 backed by 1 ounce of London Good Delivery gold bars, which are stored in Brink's vaults and regulated by NYDFS. Sounds very reliable, right?

Its goal is clear: to digitize gold investment, eliminating the need to carry physical gold, enabling 24-hour trading, allowing integration with DeFi, and providing the option to redeem real gold bars.

But here comes the key point: PAXG is not gold itself; it is merely a digital certificate pegged to the price of gold. Whether it can be redeemed and its stability all depend on the issuer Paxos's reputation. It combines the stability of gold with the vitality of cryptocurrency, but it also brings along the risks from both sides.

2. In fact, PAXG is far from spot gold.
Many people regard PAXG as online gold, but the two are fundamentally different. Let's clarify this from three key dimensions:

Price Volatility: Spot gold is priced by the global market, and even if it declines, it won't suddenly drop drastically; however, PAXG trades on cryptocurrency exchanges, and if liquidity is poor, it can crash — it previously deviated from the gold price by over 20%, a decoupling risk that is almost impossible for spot gold.

Holding Risks: PAXG is a coin on the blockchain. In case the blockchain network gets congested and is unusable, or if Paxos encounters issues, the coins you hold may just be a string of numbers.

Counterparty reliance: Unlike spot gold, PAXG relies entirely on the integrity of Paxos and its gold reserves, which is akin to handing your money over to a third party, representing typical counterparty risk.

3. Price fluctuations are just the surface! The 3 major fatal risks of PAXG
This liquidation event has actually exposed the vulnerability of PAXG, and these three risks are scarier than short-term fluctuations:

Liquidity Kill Zone: The flash crash on October 11, 2025, is essentially a liquidity bottoming out — either due to a gap in buy and sell orders, or because of a market maker's algorithm malfunction, directly triggering a liquidation cascade. High-leverage players don't have time to react, and hundreds of millions in funds evaporate in an instant.

Issuer crash risk: Although Paxos publishes KPMG's audit report every month to prove that the gold reserves match the amount of PAXG, can an audit guarantee that Paxos will never go bankrupt? Could there be misappropriation? What about the timeliness and authenticity of the audit report? These risks cannot be mitigated by the audit report.

Risks of interconnectedness in the crypto market: Don't think that PAXG can be separated from the crypto market just because it is pegged to gold. When BTC crashes, PAXG will also drop; if another black swan event occurs in the crypto space, PAXG is likely to plummet as well — its roots are still in the crypto circle.

In addition, vulnerabilities in smart contracts, hacker attacks, and high redemption thresholds are all swords hanging over our heads.

Four, audits might be the side that people want to see!

Many people feel that PAXG is very secure because it has monthly audits from KPMG and smart contract audits from CertiK. But brothers, you need to be clear:

An audit can only prove that at the moment of the audit, the gold reserves and the amount of PAXG are matched, but it cannot guarantee that there will be no problems afterward.

Auditing can check whether there are vulnerabilities in the contract, but it cannot check market liquidity or control the operations of market makers.

In simple terms, audits are merely a means of enhancing trust, not a firewall against risk — don't let your guard down just because you see the word audit.

To put it bluntly.
PAXG indeed provides a new option for gold investment, maximizing convenience, but it has never been a risk-free digital gold. This liquidation event has sounded the alarm for everyone: in the crypto space, there are no assets that guarantee a profit, including the recent stablecoin depegging.