Summary
LlamaRisk supports the onboarding of USDG as a backing asset for USDe.
USDG (Global Dollar) is a fiat-backed, non-yield-bearing USD stablecoin issued by Paxos Digital Singapore Pte. Ltd. (PDS) under the Monetary Authority of Singapore (MAS) and by Paxos Issuance Europe Oy (PIE) under the Finnish Financial Supervisory Authority (FIN-FSA) in compliance with MiCA. USDG is fully reserved 1:1 in cash and short-dated US government securities, held in segregated custodial accounts at DBS Bank and Standard Chartered. As of February 2026, reserve attestations are issued by KPMG LLP, replacing the prior provider Enrome LLP.
As of March 30, 2026, USDG circulating supply across all chains stands at approximately $1.70B, up from $352M at launch in July 2025. The token has maintained a tight peg to $1, with the maximum daily discount recorded at approximately 0.14% via the Chainlink USDG/USD price feed. USDG operates under one of the broadest multi-jurisdictional licensing frameworks among stablecoins, covering Singapore (MAS), the European Union (MiCA), and the United States (GENIUS Act / OCC national trust bank charter).
As a backing asset for USDe, USDG offers a conservatively managed, highly liquid reserve structure that aligns with the profile of other approved stablecoins in the Ethena ecosystem. The primary risks relate to custodial concentration (DBS Bank as the dominant banking partner), centralized governance (Paxos retains unilateral control over minting, redemption, and asset freezing), and the bifurcated legal protections available to holders depending on jurisdiction. We recommend a phased allocation approach, allowing exposure to scale while monitoring redemption performance, liquidity depth, and regulatory developments.
1. Issuer and Legal Structure
1.1 Corporate Structure
Paxos operates as a regulated blockchain infrastructure and tokenization platform that issues multiple stablecoins across distinct legal entities calibrated to jurisdictional regimes.
USDG is issued through two entities. Outside the European Economic Area, issuance is undertaken by Paxos Digital Singapore Pte. Ltd. (PDS), a Major Payment Institution authorized by MAS to provide Digital Payment Token services, with status reflected in the MAS Financial Institutions Directory. Within the EU, issuance is conducted by Paxos Issuance Europe Oy (PIE, formerly Membrane Finance Oy, acquired by Paxos in February 2025), a Finnish Electronic Money Institution supervised by the FIN-FSA, which offers USDG as an electronic-money token under MiCA.
The parent entity, Paxos Trust Company LLC, is a limited-purpose trust company regulated by the New York Department of Financial Services (NYDFS). Paxos Trust Company issues Pax Dollar (USDP), PayPal USD (PYUSD), and Pax Gold (PAXG) under separate regulatory arrangements. The OCC conditionally granted national trust bank charters to Paxos in December 2025 following passage of the GENIUS Act.
| Entity | Jurisdiction | Regulator | License Type |
|---|---|---|---|
| Paxos Digital Singapore Pte. Ltd. (PDS) | Singapore | MAS | Major Payment Institution (MPI) |
| Paxos Issuance Europe Oy (PIE) | Finland / EU | FIN-FSA | Electronic Money Institution (EMI) |
| Paxos Trust Company, LLC (parent) | United States | OCC / NYDFS | National Trust Bank Charter; NY BitLicense |
1.2 Regulatory Framework
USDG operates under one of the most comprehensive multi-jurisdictional licensing frameworks among stablecoins.
In Singapore, PDS received full approval from MAS as a Major Payment Institution. The MAS stablecoin framework requires 100% reserve backing in the peg currency, reserves held with licensed custodians and segregated from operating funds, minimum base capital and liquidity buffers, redemption at par within five business days, monthly attestation and annual audit of reserves, and comprehensive disclosure. Stablecoins regulated in Singapore are not protected by the Deposit Insurance Scheme; neither issuer nor custodian insolvency triggers government-backed deposit coverage for token holders.
In the European Union, PIE is licensed as an EMI by FIN-FSA. Under MiCA, USDG is classified as an Electronic Money Token (EMT), requiring 100% reserve backing, segregation of reserve assets with credit institutions, redemption at par at any time and without charge, publication of a MiCA-compliant whitepaper, and ongoing regulatory reporting. The EMI license provides EU-wide passporting, allowing PIE to issue USDG across all EU member states. EU holders benefit from a statutory safeguarding right over funds corresponding to outstanding USDG. Reserves must be confined to high-quality, low-risk instruments, kept legally segregated from PIE’s own funds, placed with qualified custodians, and structured to be bankruptcy-remote.
In the United States, the GENIUS Act, signed into law on July 18, 2025, established the first federal regulatory framework for payment stablecoins. Under the GENIUS Act, payment stablecoins must maintain 1:1 reserve backing in specified assets, the issuer may not offer interest or yield to holders, and the stablecoin is explicitly not classified as a security or commodity under federal law.
1.3 Holder Rights and Redemption
Holder rights and obligations flow from the governing terms and the applicable regulatory regime. The legal character of USDG is that of a fiat-referenced, single-currency stablecoin maintained at parity and supported on a one-for-one basis by US dollar cash and US dollar-denominated high-quality liquid assets. These reserves are held in segregated accounts for the benefit of token holders and are separated from corporate funds. USDG falls within the scope of Paxos’s USD Stablecoin Terms, which prescribe eligible reserve instruments for each issuing entity and make clear that the tokens are not designed to produce yield or confer any return to holders.
Primary-market access is conditioned on full onboarding. Only verified customers may mint or redeem directly with Paxos; non-customers may hold and transfer USDG but have no direct redemption claim against the issuer. The terms reserve Paxos’s discretion to suspend minting or decline redemptions where required by law or to avert legal exposure, while affirming that, absent a reasonable justification and subject to operational minimums, verified customers’ stablecoins are freely redeemable. Paxos states that it does not charge fees to mint or redeem Paxos-issued stablecoins, including USDG.
For holders outside the EU, the issuer of record is PDS. Paxos Digital is required to maintain full backing in US dollars or approved dollar-denominated securities, with those assets held in segregated custodial accounts for the benefit of token holders. The intent is that reserves remain separate from corporate assets so that, in an insolvency of Paxos Digital, ordinary creditors do not access the reserve; practical recourse will, however, turn on Singapore law and the mechanics of the insolvency administration.
For EU holders, redemption is governed by MiCA Article 45, which mandates unconditional redemption at par. Sections D.4 and D.5 of the USDG MiCA-compliant whitepaper disclose that both a Recovery Plan and a Redemption Plan are under development pursuant to MiCA Article 55, with completion required within six months of authorization. Reserve accounts are structured so that, if PIE were to become insolvent, those accounts are not available to satisfy the issuer’s general creditors and are instead devoted to meeting redemption claims.
1.4 Legal Terms and Risk Disclosures
USDG is governed by Paxos’s USD Stablecoin Terms and Conditions (T&Cs). These terms are broadly drafted, granting Paxos unilateral discretion over amendments, fee structures, and redemption timing. Section 3.4 authorizes the freeze, seizure, and destruction of tokens under three distinct triggers: (1) where required by law, regulation, or government order; (2) where Paxos determines that the tokens are associated with prohibited activities; and (3) where such action is deemed necessary to protect the rights or property of Paxos or third parties.
The Stablecoin T&Cs affirm that the tokens are fully backed by segregated reserves and disclaim securities, deposit, and insurance classification. Beyond these general statements, however, the Stablecoin T&Cs offer no protocol-specific risk disclosures pertaining to smart contract vulnerabilities, oracle dependencies, bridge risks, or blockchain-specific exposures.
The USDG MiCA-compliant E-Money Token Whitepaper offers a materially different and more comprehensive perspective. Its risk disclosures are tailored to USDG’s actual architecture and accompanied by corresponding mitigation measures. The Whitepaper expressly requires KYC verification for all purchasers, whether transacting through Paxos EU directly or via authorized entities, and references AML/KYC obligations throughout.
Taken together, USDG presents a bifurcated legal risk profile that diverges along jurisdictional lines. EEA holders operate within a robust MiCA-mandated framework that guarantees unconditional redemption rights at par, imposes comprehensive risk disclosure obligations, and subjects the issuer to direct regulatory oversight. Non-EEA holders, by contrast, are governed by a contractual architecture that vests Paxos with broad unilateral powers, affords minimal recourse against issuer liability, permits enforcement mechanisms including the permanent destruction of tokens, and channels disputes into mandatory arbitration subject to class action waivers.
2. Reserve Composition and Custody
2.1 Reserve Assets
USDG reserves are constituted exclusively from the US dollars deposited by minters (institutional partners and direct Paxos customers) in exchange for newly issued USDG tokens. Paxos invests these deposited funds in a narrowly defined set of high-quality liquid assets (HQLAs) designed to ensure the reserves maintain at least 1:1 backing with the outstanding token supply at all times.
The reserve composition is limited to four categories:
(a) Cash in segregated bank deposit accounts held for the benefit of USDG holders. Any balances held as US dollars are T0 (immediately) liquid and can be made available to customers on demand, subject to banking hours restrictions.
(b) US Government securities with up to three months’ residual maturity. Treasury bills provide liquidity upon maturity, unless liquidated in advance via sale through the OTC secondary market. If market events require additional liquidity, Paxos can liquidate these in the open market for T0 or T1 settlement, given the inherent liquidity and depth of the USG market.
(c) Reverse repurchase agreements that are overcollateralized by US government securities, entered into with counterparties that are not Paxos affiliates and are adequately creditworthy as defined by MAS credit rating requirements, with final maturities not exceeding one business day. Given the inherent overcollateralization of repo, the soundness of the USG collateral, and the creditworthiness of the counterparties, there is immaterial credit risk in holding balances in repo.
(d) Institutional Stable NAV USD Government Money Market Funds composed of direct investments in cash, US Government securities, and/or overnight reverse repos, with weighted average maturity of 60 days or less.
Source: Paxos February Transparency Report
2.2 Custody Arrangements
Custodial responsibilities for USDG are split geographically. In Singapore, PDS holds reserves at DBS Bank Ltd., headquartered in Singapore. DBS is Paxos’s primary banking partner for cash management and custody of USDG reserves. The reserve composition also includes Standard Chartered as a custodial bank.
This arrangement centralizes operational, sanctions-screening, and jurisdictional exposure at a small number of large counterparties. Any disruption to DBS’s operations or regulatory standing could affect primary mint/redeem capacity. DBS Bank is rated Aa1 by Moody’s and AA- by S&P, placing it among the highest-rated banks in Asia-Pacific, which partially mitigates this concentration risk.
Paxos represents that reserves are held in segregated custodial bank accounts specifically held for the benefit of USD Stablecoin customers, as stated in the Stablecoin Terms and Conditions. Under the MAS stablecoin framework, reserves must be segregated from the issuer’s operating funds and placed with a licensed custodian. PIE’s reserves in Europe are subject to MiCA’s segregation requirements, which mandate that reserve assets are not commingled with the issuer’s own funds and are held in a separate account with a credit institution.
2.3 Reserve Attestations
Paxos publishes monthly reserve attestation reports for USDG. As of February 2026, these attestations are issued by KPMG LLP, replacing the prior attestation provider Enrome LLP. KPMG’s examination is conducted in accordance with standards established by the Institute of Singapore Chartered Accountants (ISCA). The examination standard is comparable in rigor to AICPA attestation standards used by US-regulated stablecoins.
The attestation reports verify that the total value of reserve assets meets or exceeds the aggregate outstanding supply of USDG tokens at a specific point in time (typically month-end). The reports provide a snapshot verification; they confirm the reserve position at the examination date but do not provide continuous monitoring or intra-month verification.
The upgrade from Enrome LLP to KPMG LLP as the attestation provider represents a meaningful improvement in audit credibility, given KPMG’s status as a Big Four firm. This change aligns USDG’s attestation framework with that of PYUSD, which is also attested by KPMG.
3. Smart Contract and Technical Risk
3.1 Contract Architecture
The USDG token contract is deployed on Ethereum (0xe343167631d89b6ffc58b88d6b7fb0228795491d) and uses the OpenZeppelin UUPS Proxy pattern, making it upgradeable. The contract implements a role-based permission framework to manage administrative functionality.
The USDG contract implements four administrative roles:
DEFAULT_ADMIN_ROLEcontrols governance of the token’s privileges. It can grant and revoke every other role, change role-admin relationships, rotate the IERC-5313 owner, and authorize UUPS upgrades through the contract’sauthorizeUpgradegate.PAUSE_ROLEoperates the emergency halt. Holders can callpause()andunpause()to toggle the token’swhenNotPausedguard, which blocks on-chain transfers. This control does not extend to minting or burning, which are governed separately.ASSET_PROTECTION_ROLEenforces account-level controls. The holder can freeze and unfreeze specific addresses and invoke a post-freeze wipe that burns the frozen balance on-chain to reflect lawful seizure or forfeiture.SUPPLY_CONTROLLER_MANAGER_ROLEadministers mint/burn operators and their limits. The holder can add and remove supply controllers that execute mint and burn, configure guardrails such as per-controller permissions and rate or cap parameters.
All privileged actions are secured through multisig-controlled role addresses. The system’s upgradeable admin and the owner of USDG are EOAs operated via MPC (multi-party computation); Paxos uses proprietary offline HSM infrastructure that enforces multi-person approval for every administrative action.
The SupplyControl contract maintains a list of permissioned minters and burners of the USDG token, known as supplyControllers. SupplyControllers can optionally have rate limits to restrict the number of tokens minted over a given time frame. The contract is an upgradable UUPS Proxy that uses role-based access control.
3.2 Timelock and Upgradeability
The USDG token contract is owned by an IERC5313-style Admin address. A 3-hour defaultAdminDelay applies only to accepting a pending defaultAdmin transfer. Changes to the delay follow asymmetric timing: if the delay is increased, the new value takes effect only after a 5-day wait, while decreases take effect immediately. No other admin-authorized calls are time-locked by this mechanism.
BGD Labs, in their technical analysis for the Aave listing, noted that they proposed introducing timelocks for critical flows to the Paxos team, and Paxos confirmed they plan to implement them in the future. The absence of timelocks on critical functions such as upgrades and role changes remains a notable trust assumption.
3.3 Cross-Chain Bridging
USDG uses LayerZero’s OFT (Omnichain Fungible Token) Adapter for cross-chain transfers. The OFTWrapper contract is a non-upgradable contract that implements the OFT mechanisms, minting and burning tokens as they are bridged through LayerZero. Users send USDG to the OFTWrapper adapter via the send() function, which burns the tokens on the source chain. On the destination chain, the LayerZero endpoint receives the message and calls the lzReceive() function in the respective OFTWrapper, which mints the USDG to the user.
USDG is currently available on Ethereum, Solana, and Ink, with the majority of supply on Solana (approximately 71.85% as of January 2026), followed by Ethereum (approximately 24.45%) and Ink (approximately 2.7%).
3.4 Audit History
Paxos Global Dollar stablecoin contracts have been audited multiple times:
- Zellic (November 2024): identified 1 critical and 2 informational findings. The audit focused on Paxos Stablecoin’s code security and design issues.
- Trail of Bits (November 2024): identified 0 critical, 4 low, and 7 informational findings. The audit focused on the security of Paxos cross-chain messaging enablement via LayerZero.
- Halborn (July 2025): identified 0 critical, 0 high, and 1 informational finding. The audit focused on the security review of Paxos contracts after changes in
PaxosTokenV2.sol.
3.5 Bug Bounty Program
In our prior assessment for the Aave listing, we recommended the establishment of a formal bug bounty program as a condition for listing. Paxos has since delivered on this commitment by launching the Paxos Bug Bounty Program in partnership with Cantina, a Web3-focused bounty platform. The program offers up to $1M in USDG for critical findings and covers both Web2 and Web3 targets. On the smart contract side, all major contracts are in scope, including USDG, PYUSD, PAXG, and cross-chain infrastructure. On the Web2 side, public products, services, APIs, and domains are included. The program is initially invitation-only, open to researchers active in the Cantina network, with broader access expected over time. This development addresses a previously identified gap in USDG’s security posture.
4. Market Data and Peg Stability
4.1 Supply Growth
As of March 30, 2026, USDG circulating supply across all chains stands at approximately $1.70B, up from $352M at launch in July 2025. On Ethereum, the total supply is approximately $450M. The supply trajectory has been consistently upward, with notable acceleration since January 2026.
The growth has been driven by the expanding Global Dollar Network (GDN), which now includes over 100 partners across exchanges, wallets, and fintech platforms. Network participants include Anchorage Digital, Kraken, Mastercard, Robinhood, Worldpay, and others. The GDN distributes yield from USDG reserves to participating platforms, incentivizing minting, holding, and accumulation.
Token holder concentration remains significant. As of the most recent data, the top five addresses collectively hold over 60% of the total USDG supply, reflecting a high concentration among custodial and institutional wallets, including Kraken, Galaxy Digital, and Paxos operational addresses. This pattern is consistent with a recently launched institutional stablecoin but warrants monitoring as the token matures.
4.2 Peg Stability
The market price of USDG remains tightly pegged close to $1 (approximately $0.9999), with no material deviations observed via the Chainlink USDG/USD price feed. The maximum daily discount recorded is approximately 0.14%, representing stable peg behavior since the feed’s inception.
USDG’s daily 7-day annualized volatility is on par with leading stablecoins such as USDT and USDC, currently at 0.20-0.25% annualized.
During the October 10, 2025 market stress event, USDG exhibited a brief dislocation. On centralized exchanges, the price dropped to approximately $0.97, while on-chain in the Curve pool the deviation was an order of magnitude smaller, reaching only 1.003. This mirrors similar behavior observed with USDe during the same period, where USDe depegged by over 30% on some centralized exchanges but remained near peg on-chain. The USDG dislocation was substantially milder in both venues.
4.3 On-Chain Liquidity
On Ethereum, USDG liquidity is concentrated across one primary Curve USDG/USDC pool with approximately $10M TVL. This accounts for nearly all on-chain depth. DEX LP provision is concentrated, with Paxos itself providing the majority of liquidity through identified addresses.
USDG is also listed across several major centralized exchanges, including Kraken, OKX, Gate, and others, with trading pairs primarily against USD, USDT, and USDC.
For the purposes of USDe backing, on-chain liquidity is a secondary consideration. The primary redemption pathway runs through Paxos directly, with institutional redemption at par for verified customers. Redemption settlement is stated as up to T+5 business days per the MAS framework, though in practice Paxos processes most redemptions within T+0 to T+2 depending on banking cutoffs and compliance checks. Given the cash buffer and highly liquid repo/T-bill reserve, these commitments are assessed as reliable. Even in a rapid redemption scenario, the reserve structure should support orderly liquidation.
5. Suitability as USDe Backing Asset
5.1 Role in USDe Architecture
Liquid stablecoins serve two primary functions within the Ethena ecosystem: they enhance the efficiency of the delta hedging process, and they act as a safeguard in bear markets when funding rates and futures basis are suboptimal, potentially providing baseline Treasury bill-rate returns.
USDG fits within the liquid stablecoin component of USDe’s backing structure. Its reserve composition (cash, short-dated Treasuries, overnight repos, and government money market funds) is consistent with the profile of other approved stablecoins in the Ethena ecosystem, such as USDT and USDC. The non-yield-bearing design of USDG means that all interest earned on reserves is retained by Paxos and distributed through the GDN to participating platforms, rather than accruing to token holders directly. This is consistent with the treatment of PYUSD and USDC within the Ethena system.
5.2 Reserve Fund Eligibility
The Ethena Reserve Fund acts as an insurance buffer against negative funding rates or unexpected losses. Assets held in the Reserve Fund must be highly liquid, stable, and readily redeemable. USDG meets these criteria: its reserves are composed entirely of high-quality liquid assets with maturities not exceeding three months, it maintains demonstrable peg stability, and it offers institutional-grade redemption at par through a regulated issuer.
5.3 Comparative Assessment
Compared to other stablecoins currently approved or under consideration as USDe backing assets, USDG offers several distinguishing characteristics.
The multi-jurisdictional regulatory coverage (MAS, MiCA, GENIUS Act) provides a broader regulatory footprint than most stablecoins. PYUSD, issued by the same parent (Paxos Trust Company), operates exclusively under the NYDFS framework. USDC operates under multiple state money transmitter licenses plus a recently obtained charter. USDG’s dual-issuer structure, calibrated to Singapore and EU regulatory regimes, provides geographical diversification of issuer risk relative to US-only issuers.
The reserve composition is comparable to PYUSD. Both rely on cash deposits, short-dated Treasuries, and overnight repos, with attestations now conducted by the same firm (KPMG LLP). The primary difference is custodial: PYUSD reserves are held predominantly at State Street Bank, while USDG reserves are held at DBS Bank and Standard Chartered.
The attestation upgrade from Enrome LLP to KPMG LLP in February 2026 brings USDG’s transparency framework to parity with PYUSD and represents a meaningful improvement in audit credibility.
5.4 Risk Factors
Custodial concentration: USDG reserves are primarily held at DBS Bank, centralizing operational, sanctions-screening, and jurisdictional exposure at a single large counterparty. While DBS is highly rated (Aa1/AA-), any disruption to its operations or regulatory standing could affect primary mint/redeem capacity. The addition of Standard Chartered provides partial diversification but the degree of allocation across custodians is not publicly disclosed.
Centralized governance: Paxos retains unilateral control over minting, redemption, asset freezing, and contract upgradeability. The 3-hour timelock on admin transfers is minimal, and no timelock exists on other critical functions. While centralization is by design for a regulated issuer, it introduces operational and governance risk that requires trust in the Paxos entity.
Bifurcated holder protections: The protections available to USDG holders differ materially by jurisdiction. EU holders enjoy MiCA-mandated unconditional redemption at par, comprehensive risk disclosure, and regulatory oversight. Non-EEA holders are subject to broader issuer discretion, limited recourse, and mandatory arbitration.
Token holder concentration: The supply remains heavily concentrated among a small number of institutional wallets. While expected for a relatively new institutional stablecoin, this pattern means that large redemptions by a single entity could create temporary liquidity pressure.
Bug bounty program maturity: Paxos has launched a bug bounty program via Cantina with up to $1M in rewards, addressing a previously identified gap. The program is currently invitation-only and has not yet undergone extended public testing. Its effectiveness will become clearer as it matures and attracts broader researcher participation.
6. Recommendation
LlamaRisk supports the onboarding of USDG as a backing asset for USDe and as an eligible asset for the Ethena Reserve Fund. The asset’s reserve quality, regulatory standing, peg stability, and attestation framework meet the requirements for inclusion within the Ethena system.
We recommend a phased approach to allocation, allowing exposure to scale while monitoring the following:
- Redemption performance under varying market conditions and at scale.
- On-chain and off-chain liquidity depth, particularly as circulating supply continues to grow.
- Progress on the implementation of timelocks for critical smart contract functions.
- Continued evolution of the custodial arrangement, particularly any diversification beyond DBS Bank.
- Regulatory developments across the MAS, MiCA, and GENIUS Act regimes that may affect reserve requirements, redemption mechanics, or issuer obligations.
On balance, USDG’s conservatively managed reserve structure, multi-jurisdictional regulatory coverage, and alignment with the existing stablecoin framework used by Ethena make it a suitable addition to the set of approved backing assets.
Disclaimer
This review was independently prepared by LlamaRisk, a community-aligned risk service provider. LlamaRisk is not directly affiliated with Ethena, Paxos, or their affiliated entities and did not receive any compensation from these protocols for this work. The information provided should not be construed as legal, financial, tax, or professional advice.