PayPal Subpoenaed Over PYUSD Stablecoin

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  • PayPal has revealed that it received an SEC subpoena related to its PYUSD stablecoin
  • The company has been asked to hand over documents relating to its creation
  • The SEC probe is linked to concerns over stablecoins and their potential impact on financial markets and central banks’ authority

PayPal has been served with a subpoena by the US Securities and Exchange Commission’s (SEC) division of enforcement in connection with its PYUSD stablecoin. The subpoena, which requested documents related to the project, was revealed in a recent regulatory filing, and PayPal says it is actively cooperating with the investigation. The news didn’t damped investor enthusiasm for the company as its share price jumped 7% yesterday after it promised to be “leaner” in the future.

PayPal Tight Lipped Over Subpoena

PayPal introduced its dollar-pegged PYUSD coin in August, revealing that it was fully collateralized by US dollar deposits, short-term Treasuries, and similar cash equivalents. According to data from CoinGecko, PYUSD has a market capitalization of approximately $158 million, roughly over 500x less than the market leader USDT. However, crucially, the issuer Circle has been externally audited compared to Tether producing attestations over its backing.

PayPal said that it was cooperating with the investigation and added no further detail as to what concerns, if any, the SEC had over PYUSD.

CFPB Also Looking into PayPal

In addition to the SEC’s subpoena, PayPal disclosed that it received a civil investigative demand from the Consumer Financial Protection Bureau (CFPB) in October. This demand focused on Regulation E, which governs electronic fund transfers. Specifically, the CFPB is examining how PayPal handles cases where customers mistakenly send payments to the wrong recipients through its Venmo service.

This latest investigation is concerned with how PayPal investigates and resolves errors related to its obligations under Regulation E, as well as how Venmo presents transactions to customers’ linked bank accounts.

Stablecoins High on the Regulatory Agenda

Stablecoins have been subject to regulatory scrutiny in the United States for some time, with regulators expressing concerns about the potential risks associated with these digital assets. The core issue is the type that led to the collapse of Terra: the mechanism underpinning its value, whatever it might be, could collapse, causing market instability.

Additionally, the growing popularity of stablecoins raises concerns that they could undermine central banks’ authority and potentially facilitate money laundering activities.

US lawmakers have been debating new legislation to establish regulatory guidelines for digital tokens, with SEC Chair Gary Gensler suggesting that stablecoins could be classified as securities, subjecting them to the SEC’s stringent investor protection and disclosure requirements.

The subpoena had no negative impact on the share price of the company as PayPal Holdings (PYPL.O) added nearly $4 billion to its market value overnight, following a pledge from the company’s new CEO, Alex Chriss, that the company was going to start cutting costs and become “leaner”.