PayPal Halts Stablecoin Foray Weeks Before Launch Over Regulatory Pressure

According to a report from Friday, February 9th, PayPal decided to pause its stablecoin plans. Allegedly, the firm’s decision is largely due to its main partner in the endeavor, Paxos, being under investigation by the New York State Department of Financial Services.

PayPal Pauses Stablecoin Plans

Even though PayPal was allegedly planning to launch its stablecoin in mere weeks, a report from Friday revealed the firm decided to temporarily suspend the project. The decision is largely based on Thursday’s news that PayPal’s main partner in the effort, Paxos, is under investigation by the New York State Department of Financial Services.

Currently, the exact scope of the investigation is unknown but the reveal came at the tail of a recent rumor that the company has been asked by the U.S. Office of the Comptroller of the Currency to withdraw its application for a full banking charter. Paxos is one of the leading stablecoin issues and is behind tokens like the Pax dollar (USDP) and, perhaps more notably, Binance USD. 

PayPal’s stablecoin plans were initially reported in January 2022. The token was intended to be backed by the US dollar 1:1. Reportedly, PayPal is seeking to proceed with the launch of the stablecoin as soon as conditions allow for it. Despite the setback, a document recently published by the company revealed that it has maintained its interest in digital assets throughout the previous year as its cryptocurrency holdings—mostly comprised of Bitcoin and Ethereum—amounted to $604 million.

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A Busy Week For US Regulators

PayPal’s decision comes at the end of what has probably been the busiest week for US regulators so far in 2023. On Thursday, February 9th, the SEC announced it had launched an enforcement action against the cryptocurrency exchange Kraken alleging its crypto staking service constitutes a violation of the Securities Act of 1933.

At the same time, it was revealed that Kraken agreed to settle with the watchdog paying $30 million in disgorgement. Furthermore, Kraken will terminate its crypto-staking service in the US, and its affected subsidiaries would be permanently barred from rebooting the offering in the future—registered or not.

Additionally, SEC’s Gary Gensler gave an interview earlier on Friday claiming that most digital currency companies are not compliant and warning that further enforcement actions will follow. On the other hand, it appears there isn’t complete unanimity within the SEC as Commissioner Hester Peirce published a scathing statement criticizing the agency for its aggressive approach shortly after the settlement was announced.

Why is Paxos under regulatory scrutiny? Tell us what you think in the comments below.