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Paxos Solidifies Position as a White Label Stablecoin Service
Despite previous friction with NYDFS, the crypto builder's reputation grows.
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On Monday, PayPal USD (PYUSD) joined the ever-growing stablecoin market as the latest addition. As previously covered, PYUSD is backed in line with other centralized stablecoins, such as Tether (USDT) and USD Coin (USDC).
They all rely on short-dated US Treasuries, USD deposits and cash equivalents to meet their 1:1 redemption for dollars demand. PayPal’s stablecoin entry, as the largest payment processor with over 429 million active accounts, is an important milestone, ranking equally with PayPal’s cryptocurrency integration in October 2020.
Although PYUSD is centrally controlled and freezable, it opens another road towards tokenizing the global economy. Paxos Trust is at the forefront of building that road, poised to become the go-to fiat-to-crypto pipeline builder.
Paxos Trust as White-Label Stablecoin Service, Despite NYFDS Clash
Just as the world’s largest crypto exchange, Binance, selected Paxos Trust to launch Binance USD (BUSD) in 2019, so did PayPal pick Paxos for the latest PYUSD stablecoin. To protect consumers, both PayPal and Paxos Trust are regulated by the New York State Department of Financial Services (NYDFS).
Specifically under NYDFS’ Bitlicense. When PayPal enabled cryptocurrency transmission in October 2020, it partnered with Paxos Trust to make it happen. In addition to BUSD and PYUSD, Paxos launched its own Paxos Standard (PAX) and TrueUSD (TUSD) stablecoins, establishing the company as a white-label service for stablecoins.
Interestingly, NYDFS ordered Paxos to stop minting BUSD this February due to unclear segregation between Binance’s BUSD reserves and user funds. Furthermore, NYFDS only authorized Paxos to mint BUSD on the Ethereum blockchain as an ERC-20 token.
Likewise, PayPal’s PYUSD will go outside its Venmo-walled garden to Ethereum, issued as ERC-20. This allowed smart contract security reviewers to inform the public already that PayPal USD (PYUSD) allows for users’ balances to be wiped.
This aligns with PayPal’s previous heavy-handed approach to users’ own money, wherein PayPal threatened users with a $2,500 fine for posting “misinformation” online. Even David Marcus, PayPal’s former president, described this approach as “insanity.”
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With Paxos Trust Having More Stablecoins Lined Up, Is PYUSD that Impactful?
On Tuesday’s CoinDesk TV appearance, Paxos’ head of strategy, Walter Hessert, said they have “other white label stablecoin opportunities in the works.”
This includes “largest technology and financial services companies,” emphasizing those companies that can “move the needle” on mass adoption of blockchain-based products. However, it is unclear if PYUSD should be considered to have that impact.
Regulated by NYFDS, PYUSD is US-focused, requiring US bank accounts to access Venmo. In turn, US citizens would receive extra convenience, leveling up from electronic to digital (tokenized) dollars.
Ethereum issuance would come into play as a bridge outside Venmo. Presumably, non-US residing users could then withdraw PayPal funds to their Ethereum-compatible wallets. But that is yet to be shown to be the case.
The restrictive code that allows for balances to be wiped/frozen hints at that not happening. Ultimately, PYUSD may be more about making money for PayPal than pushing the FinTech envelope. After all, if backed by US Treasuries like massively successful Tether (USDT), this allows PayPal to accrue interest beyond what is available in bank deposits.
Given PayPal’s deplatforming history, do you think PYUSD is trustworthy beyond redemption assurance? Let us know in the comments below.
Tim Fries
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
