When PayPal launched its US dollar stablecoin on August 7, everyone in the crypto industry noticed. Indeed, the 24-year-old, $68 billion fintech behemoth unveiling PYUSD conferred instant credibility onto the stablecoin industry.

However, real-world adoption of PayPal’s stablecoin has been sluggish. PYUSD already faces stiff competition from incumbents. 

Older stablecoins might have shady histories yet they benefit from popular brand names, deep liquidity, Lindy effects, listings on many crypto exchanges, and fiat-denominated trading pairs around the world.

In short, the debut of PYUSD flopped. It’s barely grown to 0.05% the size of Tether, the world’s oldest stablecoin.

PayPal’s issuer Paxos just published its transparency report, disclosing PYUSD reserves of just $45.3 million as of August 31, 2023. That compares to Tether’s $83.1 billion.

PYUSD’s backing includes $43.8 million in US Treasuries plus $1.5 million in cash deposits at insured depository institutions. Unlike Tether’s repeatedly broken promises about its dollar backing, PayPal has followed through with its promise to back PYUSD with dollars, short-term US treasuries, and cash equivalents.

Moreover, PYUSD has never significantly de-pegged from $1. Unlike Tether which has traded as low as $0.001 and as high as $1,000, PYUSD boasts an all-time trading range of $0.979 to $1.01. Both trade at $1 today.

PayPal’s underwhelming PYUSD stablecoin

“PayPal chose a very interesting time to launch a stablecoin,” Ripples head of payments products Pegah Soltani told CoinTelegraph. Indeed, in February 2023, Paxos communicated with the SEC over its dealings with Binance’s stablecoin, BUSD. The New York Department of Financial Services (NYDFS) also ordered Paxos to stop issuing BUSD altogether.

Read more: PayPal stablecoin can be frozen like Tether and Circle

Bank of America analysts have also opined that PYUSD would likely face stiff competition from CBDCs and yield-bearing stablecoins.

Interestingly, Bitcoin News found lines in PYUSD’s code that allow PayPal to freeze or wipe any PYUSD wallet on the same day that PayPal launched its stablecoin. That news quickly spread via X (formerly Twitter) and could have significantly weakened the launch of PYUSD.

The NYDFS added PYUSD to its green list of approved digital assets while removing older assets like Litecoin, Dogecoin, and Ripple.

Paxos is holding the assets used to back PYUSD in a trust designed to protect tokenholders from any bankruptcy of Paxos or PayPal.

In short, PayPal’s PYUSD has failed to gain much traction so far, with only $45.3 million in assets listed in Paxos’ first transparency report. It’s barely five one-hundredths of one percent the size of Tether. PYUSD faces stiff competition, potential regulatory hurdles, and the unpopular nature of centralized assets that can remotely freeze or erase any users’ holdings.

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The post Why is PayPal’s stablecoin PYUSD struggling a month after launch? appeared first on Protos.

PayPal has finally launched its oft-delayed stablecoin in partnership with Paxos. The token was delayed amid increasing regulatory scrutiny around Binance USD, another Paxos stablecoin.

The launch of the coin has led some Twitter users to highlight that it boasts functions that would allow the company to freeze assets and wipe value from addresses.

Other stablecoins do use different names for these functions. Tether, for example, relies on a blacklist, which on Ethereum makes use of the addBlackList function. This prevents the token from being transferred. The function that destroys assets in an address is called destroyBlackFunds.

Tether uses this function regularly, including in cases where it believes someone has been the victim of a scam. Indeed, it recently froze the proceeds of a phishing scam.

Historically, Tether once forced a hard fork of Bitcoin’s Omni layer in order to add the ability to freeze tokens after it was hacked. Tether still fails to accurately account for these on its transparency page.

Circle also relies on blacklists to prevent tokens from being transferred.

Read more: Coinbase allegedly offered Circle $3B lifeline during USDC depeg

Data from The Block shows that Circle has blacklisted 170 different addresses on Ethereum. 

Other Paxos coins, of course, have the same functions as PayPal, including the Pax Dollar. 

Simply put, PayPal’s stablecoin is neither unique nor special, inheriting design decisions from many existing stablecoins.

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PayPal has halted the debut of its stablecoin amid heightened regulatory scrutiny in the crypto industry and news of a probe by the New York State Department of Financial Services (NYSDF) into its key partner, Paxos.

Crypto firm Paxos was working closely with PayPal to launch a ‘PayPal Coin,’ announced last year when it was leaked by Bloomberg. The coin was intended to be backed by the US dollar.

However, the incumbent launch was halted on Friday. “We are exploring a stablecoin; if and when we seek to move forward, we will of course, work closely with relevant regulators,” a spokesperson told Bloomberg.

Paxos made headlines this weekend after the Securities and Exchange Commission (SEC) threatened legal action against the firm for minting BUSD, the stablecoin of crypto exchange Binance. The SEC alleges that BUSD is an unregistered security. In response, Paxos has announced that it will no longer issue new BUSD tokens from February 21 onwards.

Binance has been embroiled in scandal that has caught the attention of regulators and criminal investigators on suspicions of money laundering and other financial crimes. Paxos’ legal threat by the SEC suggests that the commission may be closing in on the exchange.

Read more: Binance’s stablecoin BUSD hasn’t always been 1:1 backed, report

Binance and Paxos partnered in 2019 to launch BUSD, which is also meant to be backed 1:1 with US dollars. Following the news of Paxos’ end to minting, BUSD has slightly lost its peg, trading at a low of $0.9989 earlier on Monday. At press time, the token trades for $0.9997.

Given the regulatory advances made in the past months following the collapse of FTX and others, it remains to be seen if PayPal will follow through and risk the associated regulatory scrutiny with launching a stablecoin in 2023.

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