Just three months after PayPal entered the fray to bring stablecoins to the masses, it’s attracting attention from U.S. regulators that are tightening the screws on the stablecoin sector.
The payments giant said Thursday that it had received a subpoena from the Securities and Exchange Commission related to its U.S. dollar-pegged stablecoin, according to Reuters. TechCrunch has reached out to PayPal for comment.
In early August, PayPal launched PalPal USD, or PYUSD, a stablecoin issued by Paxos Trust Company and backed by U.S. dollar deposits. At the time, the firm said the digital currency solution would be “gradually” rolling out to users in the U.S. In September, PayPal made the stablecoin available on Venmo.
On the PayPal app, users can buy and sell PYUSD, convert it to other cryptocurrencies like Bitcoin, pay for items at “millions of” online stores, send the stablecoins to friends on PayPal in the U.S. without a fee or transfer the tokens to external Ethereum wallets.
PayPal joins a growing list of tech companies targeted by U.S. authorities over their interaction with digital currencies. While most of the players under regulatory scrutiny are crypto-native, PayPal marked the first major U.S. financial institution to launch stablecoins for payments and transfers.
The regulatory scrutiny over PayPal will likely spark more concerns within the stablecoin space in the U.S., which is already dampened by challenges faced by Circle. The payments-focused crypto company, which is the backer of the popular USD-pegged stablecoin USDC, failed to go public due to questions raised by the SEC, according to The Wall Street Journal.
It’s widely known that the SEC’s chair Gary Gensler is not a fan of stablecoins, warning the crypto asset’s systematic risk to financial stability. Jeremy Allaire, the CEO of Circle, argued that the securities authority isn’t the right regulator for stablecoins due to the asset’s focus on payments.
Meanwhile, on other continents, entrepreneurs and regulations are propelling the development of stablecoins, which are regarded as the more useful form of cryptocurrency for the exchange of value than most volatile tokens. Hong Kong, for instance, is working to launch a regulatory framework for stablecoins by 2024. The European Union similarly has established guardrails for stablecoin use, with companies like Monerium offering regulated euro-denominated tokens.