According to PayPal’s quarterly report published today, the payments firm received a subpoena from the SEC Division of Enforcement yesterday regarding the PayPal USD stablecoin.
“The subpoena requests the production of documents. We are cooperating with the SEC in connection with this request,” PayPal says in the filing.
In August PayPal announced that its crypto partner Paxos Trust would issue a PayPal USD (PYUSD) stablecoin. So far the market capitalization is $158 million. At the time our analysis showed that the Tether stablecoin reserves were double the monies held by PayPal on behalf of customers. Given that reserves now earn significant interest, the attraction of a stablecoin for PayPal is clear.
SEC considers some stablecoins are securities
SEC Chair Gary Gensler has previously stated that some stablecoins are securities. That’s because they might be shares of a money market fund or another kind of security. He outlined classification criteria as including:
- whether they pay interest, directly or indirectly, through affiliates or otherwise
- the mechanisms to maintain the value
- how the tokens are offered, sold, and used.
In July the U.S. House Financial Services Committee voted in favor of the Stablecoin Bill, although the legislation still has a long way to go. It currently lacks bipartisan support. However, one of its clauses prevents the SEC from treating stablecoins as securities. That’s a clause added by the Republican party.
Meanwhile, the regulatory filing includes stablecoin regulations among its risks. It states,
“The regulatory treatment of stablecoins is evolving and has drawn significant attention from legislative and regulatory bodies around the world, including the SEC. There are uncertainties on how ongoing changes to federal, state, and international laws and regulations would apply to stablecoins in practice, and we and the PYUSD Issuer may face substantial costs to operationalize and comply with any additional or changed requirement. If we or the PYUSD Issuer fail to comply with regulations, requirements, prohibitions or other obligations applicable to us, we could face regulatory or other enforcement actions, potential fines, and other consequences. In addition, we could face reputational harm through our relationship with the PYUSD Issuer if the PYUSD Issuer were to face regulatory scrutiny or if PYUSD is deemed to be a security.”
As of September 30, PayPal held $877 million in cryptocurrency on behalf of customers. More than 90% is in Bitcoin and Ethereum.
