Author: Loopy, Odaily Planet Daily
Today, the stablecoin market once again experienced major changes.
Documents disclosed by PayPal indicate that PayPal has received a subpoena from the SEC Enforcement Division regarding PayPal’s USD stablecoin (PYUSD) today, which requires PayPal to produce a series of documents. PayPal said that the company is cooperating with the SEC on this request.
In August 2023, PayPal officially launched the US dollar-denominated stablecoin PayPal USD (PYUSD), which was the first time a large financial company issued its own stablecoin. PayPal USD is based on Ethereum (ERC 20), issued by Paxos Trust Company, and is 100% backed by US dollars, short-term US Treasury bonds and similar cash equivalents, and can be exchanged for US dollars at a 1:1 ratio.
The expansion of the stablecoin business is not only crucial to PayPal's crypto layout, but also to Paxos. Previously, Paxos's stablecoin business went downhill due to the suspension of its flagship product BUSD by regulators. With the issuance of PYUSD through this cooperation, Paxos may also have a chance to recover.
According to CoinMarketCap data, as of now, the circulating market value of PYUSD is $158 million. Although this figure is very small compared to mainstream stablecoins, it is still a good start.
At the time of the launch, PayPal President and CEO Dan Schulman said: "The shift to digital currencies requires a stable instrument that is both digitally native and easily connectable to fiat currencies like the U.S. dollar. Our responsible commitment to innovation and compliance, and our track record of delivering new experiences for our customers, provide the necessary foundation to drive growth in digital payments through PayPal USD."
PYUSD Where is the risk?
In September 2023, PayPal launched PYUSD for Venmo customers. Venmo is a mobile payment service owned by PayPal.
It is not uncommon for giants to get involved in stablecoins. One of the gratifying things about PayPal is that this stablecoin is first for American customers. Given the strict US crypto regulation, this also represents the compliance of PYUSD to a certain extent.
PayPal’s president noted that PYUSD is a “fully backed, regulated stablecoin that has the potential to transform payments in web 3 and digital native environments.”
But now, the project is facing a potentially huge blow. We can't help but ask, what exactly happened to PYUSD?
PayPal stated in the disclosure document that the company's selected custody partners and PYUSD issuers are subject to regulatory supervision, meet capital requirements, meet audit and compliance industry certifications, and cybersecurity policies.
However, they also honestly stated that if any custodian (or issuer)'s operations are interrupted or the custodian (or issuer) fails to properly protect the cryptocurrency holdings (or reserve assets), it may result in customer asset losses. This will expose PayPal to customer claims, reduce consumer confidence, and have a significant impact on its operating performance and cryptocurrency products.
In addition, there are more risks from the custodian, such as improper access, theft, vandalism, insufficient insurance, etc.
The bankruptcy of the custodian is also seen as an uncertain risk. PayPal disclosed that although there are various regulatory systems, the custody of crypto assets still involves unique uncertainties. Sometimes, the crypto assets in custody may be deemed not to be part of the custodian's bankruptcy estate. At present, the bankruptcy court has not clarified the appropriate treatment of digital asset custody holdings in bankruptcy proceedings. If the custodian goes bankrupt, the result will be full of uncertainty due to the lack of precedent.
But it should be made clear that this time the SEC only requires PYUSD to provide documents to cooperate with the investigation.
There are no public documents showing the SEC’s specific demands (such as directly classifying it as a security, similar to BUSD). Currently, the documents disclosed by PYUSD show the potential risks of this stablecoin, but both PayPal and the SEC are still in a state of lack of detailed information. This incident is bound to last longer and more information is still needed.
The next Libra, or the next BUSD?
In 2019, Facebook officially announced the digital currency Libra, which shocked the entire industry. Although Libra was eventually aborted for various reasons, the crypto exploration of this global giant with 3 billion monthly active users still wrote the most magnificent and wonderful narrative for the integration of the "mainstream world" and the "crypto world".
Among various speculations and studies, a considerable number of people believe that the biggest dilemma of Libra lies in regulation. Its stabilization mechanism has caused a huge collision and rift between Libra and the traditional world.
PayPal’s stablecoin has been extended to Venmo, and combined with PayPal’s business scenarios, it will undoubtedly generate a wealth of application scenarios. This will greatly increase the difficulty of anti-money laundering. With the strengthening of supervision in various fields, anti-money laundering and compliance requirements have always been a lingering haze for crypto companies.
The regulatory treatment of stablecoins is evolving and has attracted significant attention from legislative and regulatory agencies around the world, including the U.S. Securities and Exchange Commission. In practice, there is uncertainty about how ongoing changes in federal, state, and international laws and regulations will apply to stablecoins, and PYUSD may face significant costs to operate and comply with any additional or changed requirements.
When the story of Libra ended, BUSD once again showed us the vulnerability of stablecoins in the face of regulation. The stablecoin giant, which once had a market value of 15 billion and ranked among the top three in the market, announced the end of its rule almost overnight.
At present, the market value of PYUSD is only over 100 million, and it is still in its infancy, but it has encountered the investigation request of the SEC. Will PYUSD in the future repeat the mistakes of its predecessors?
