PayPal, one of the world’s largest payment companies, has found itself in the spotlight due to the controversy surrounding its stablecoin PYUSD. On November 1, 2023, the company received a subpoena from the Executive Branch of the U.S. Securities and Exchange Commission, known as the SEC. The reason? Relationships related to the PYUSD stablecoin, which had been launched just a few months earlier.
PYUSD, despite its solid fundamentals, has so far disappointed
PayPal, which has always been known for its innovative payment solutions, decided to launch its own stablecoin in August 2023. In partnership with Paxos, PayPal launched PYUSD, claiming that it is a stablecoin digital currency that is fully regulated and backed. Paxos, the issuer of PYUSD, is subject to regulatory oversight by the New York State Department of Financial Services (NYDFS). Moreover, PayPal holds a BitLicense from the NYDFS, which was supposed to confirm its legality and compliance.
However, despite these assurances, PYUSD has not gained as much popularity as expected. The total supply of the coin currently stands at around 159 million tokens. Nevertheless, the SEC has decided to take a closer interest in the issue.
From a big cloud a little rain
The subpoena from the SEC is only a step in the investigative process. Its purpose is to gather documents and information to understand whether there are any irregularities or regulatory violations. It is not yet a final decision to initiate legal and criminal proceedings against PayPal, or other PYUSD-related entities.
PayPal’s response to the call has been firm. Company representatives report that they are cooperating fully with the SEC and providing all necessary documents and information. This shows that the company is ready to go through the investigative process and clarify any doubts about stablecoin.
Stablecoins under the SEC’s magnifying glass
It is worth noting that this is not the first time that the SEC has taken an interest in stablecoins issued by Paxos. Earlier, in another case, the SEC paid special attention to BUSD, a stablecoin issued by the company to the Binance exchange. Commission officials ruled that BUSD was functioning as an unregistered security. Paxos vigorously defended its position, claiming that BUSD does not meet the definition of a security under federal regulations. Despite this, it decided to stop issuing the coin altogether. The aftermath is its capitalization, which at the time of writing this article is slightly above $2 billion. This is a drastic drop from the peak reached in November 2023, which was $23.3 billion.