PayPal Receives SEC Subpoena Over Stablecoin Project

• PayPal’s stablecoin, PYUSD, launched in August is under monitoring as the US Securities and Exchange Commission issues a Subpoena. 

• It is reported that authorities’ major concern about this asset class is its effect on the overall market and a potential threat to the powers of the central bank. 

PayPal announced in August that it has introduced a stablecoin, PYUSD, amid the backdrop of regulatory scrutiny within the stablecoin ecosystem. According to reports, the asset issued by Paxos Trust is backed by “U.S. dollar deposits, short-term Treasury, and similar cash equivalents.” The primary objective is to facilitate digital payment and contribute to the web3 ecosystem while operating on the Ethereum blockchain.

According to the latest report, the US Securities and Exchange Commission has issued a Subpoena to PayPal Holdings Inc. on its stablecoin. As indicated in the Subpoena, PayPal is required to produce a document related to the project. 

Experts have linked the concerns of SEC in relation to stablecoins to two main reasons. Firstly, the successful implementation and growth of stablecoins could affect the powers of the central bank. It is believed that criminals can easily use them as tools to launder money.

The other concern is that their failure can crash the entire market as observed in the TerraUSD crash. In the case of the TerraUSD, the stablecoin was algorithmic and maintained a 1:1 peg to the USD via arbitrage incentives and trading mechanisms. However, PayPal’s stablecoin is an asset-backed project. 

Last year, SEC chair Gary Gensler said that cryptos whose prices depend on traditional securities might be subject to the securities laws. Speaking on this, Gensler stated that some stablecoins are securities. 

Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These platforms – whether in the decentralized or centralized finance space – are implicated by the securities laws and must work within our securities regime.

PayPal Also Questioned by the Consumer Financial Protection Bureau

The stablecoin ecosystem is growing rapidly with 2022 alone recording a settlement of more than $11 trillion. This is said to be about 1000 percent more than the value of transactions handled by PayPal. Comparatively, credit card payment company Visa handled transactions worth $11.6 trillion. 

A report from hedge fund giant Brevan Howard stated:

The rapid growth of stablecoin usage may surprise some US readers for whom the value proposition of stablecoins does not strongly resonate. However, stablecoin adoption is an inherently global phenomenon, as one of the primary value propositions of stablecoins is that they can provide basic, dollar-based financial services … to almost anyone with an internet connection.

Recently, multinational full-service private and merchant bank Berenberg said in a research report that the Commission may come after the Decentralized Finance industry, and stablecoins including (USDT) and USD Coin (USDC). 

PayPal has also confirmed the receipt of a letter from the Consumer Financial Protection Bureau, an establishment that focuses on regulations relating to electronic fund transfers. 

Initially, the Agency made inquiries on how PayPal handles situations where customers mistakenly send money to the wrong accounts via the Venmo service. As required by Regulation E, customers are required to receive a refund when hackers access accounts and send money to themselves. Recently, perpetrators have used the network to convince customers to send money, which in this case, does not warrant a refund. 

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