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US Congresswoman Raises Concerns About Paypal Stablecoin In The Absence Of Regulation

Earlier this week, popular American payment giant Paypal unveiled the launch of its USD-pegged PYUSD stablecoins to investors. In response, Democrat congresswoman Maxine Waters has raised palpable concerns that may or may not threaten the stablecoin’s operations.

Waters Raises Regulatory Concerns

Reacting to the news of Paypal’s PYUSD stablecoin launch, congresswoman Maxine Waters noted that the launch comes at a time when there was no legislative mechanism to regulate these assets. 

She stated that “given PayPal’s size and reach, federal oversight and enforcement of its stablecoin operations is essential in order to guarantee consumer protections and alleviate financial stability concerns.” She further noted that “stablecoins represent the issuance of a new form of money, making it integral that there are federal guardrails.” 

Waters’ recent comments are in contrast with those of the House Financial Services Committee Rep. Patrick McHenry, who had earlier lauded PayPal’s launch. According to him, the recent announcement was “a clear signal that stablecoin, if issued under a clear regulatory framework, holds promise as a pillar of our 21st century payment system”

Last month, the US House Financial Services Committee also introduced a bill to set up a federal regulatory framework for stablecoins, focusing on guidelines for registration and licensing for stablecoin issuers. 

Although stablecoins have been around for several years, they have not been able to enjoy significant attention within the mainstream consumer payment ecosystem. Similar efforts by popular non-cryptocurrency firms, such as Meta Platforms, to launch stablecoin services faced harsh resistance from policymakers and global financial regulators. 

In the face of regulatory uncertainty, it is always critical whenever a lawmaker has something to say about virtual currencies.

PayPal stock price chart from Tradingview.com (PYUSD)

PayPal To Expand Into The Growing Stablecoin Industry

According to a report published on August 9 by popular market analyst Bernstein, the stablecoin industry is projected to reach a $2.8 trillion valuation in the next five years. This represents a whooping 22x increase from the present $125 billion valuation of the industry, and PayPal is looking to take advantage of this expected increase through its recent release of the PYUSD stablecoin. 

The leading payment giant revealed that the stablecoin will be “100% backed by US dollar deposits, short-term US Treasuries, and similar cash equivalents.” The coins will be redeemable 1:1 for US dollars and issued by US-based Paxos Trust Co. Consumers will also be able to convert any crypto supported by PayPal to and from PayPal USD (PYUSD).  

However, aside from the current legislative tussle, PayPal will also face competition from existing players such as Tether and Circle. Tether’s USDT and Circle’s USDC are the largest stablecoins, with market caps of over $83 billion and $26 billion, respectively. 

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Can PayPal’s PYUSD Be Frozen In Your Wallet Like Tether’s USDT?

PayPal and Paxos dominated the news cycle on Monday with the announcement of the launch of the PayPal (PYUSD) stablecoin, but concerns have been raised about the possibility of user assets being frozen in their wallets, as is the case with USDT.

Crypto Community Adverse to Paxos Wallet Freeze Feature

The PYUSD stablecoin issued by Paxos has a condition that is not too welcomed by the crypto community, which has dulled the initial excitement for the launch of the PayPal stablecoin. According to reports, Paxos, a blockchain infrastructure firm that issued the PYUSD has several centralization issues which give them a certain amount of control over user’s wallets. 

Information published on its GitHub account reveals that Paxos can freeze or suspend users’ wallets and transfer functions on PYUSD authorization in the case of a security threat. The Paxos freeze feature is quite similar to Tether’s USDT which is able to freeze/blacklist users’ addresses involved in fraudulent activities. Additionally, Paxos can withhold users’ funds and assets, as well as wipe the account clean if the law requires it. 

The reactions from the crypto community were instant and not too favorable as investors’ anxiety spiked at the thought of possibly losing their substantial digital assets or having their wallets on lock. 

Centralization has always been a touchy subject for the crypto community as decentralized networks are often believed to be more secure and distribute control among network participants rather than a central body. 

Paxos has stated that freezing accounts is unlikely to happen often, and the company itself would not execute the process. 

PayPal stock price chart from Tradingview.com (PYUSD Stablecoin)

PayPal Launches PYUSD Stablecoin

Global payment giant PayPal recently unveiled its latest innovation, the PayPal USD (PYUSD) stablecoin, on August 7, in collaboration with Paxos, a New-York based blockchain infrastructure company. The news comes as a significant development for the Paxos ecosystem, as the integration of cryptocurrencies into the financial industry continues to grow. 

The crypto community has largely welcomed this new development, as investors and traders are gearing up to take advantage of the token and its conveniences. Analysts also predict that popular cryptocurrencies like Bitcoin and Ethereum prices will also benefit significantly from the new stablecoin. 

The PYUSD is an ERC-20 token developed on the Ethereum blockchain backed by the US dollar. Launching PayPal’s stablecoin is expected to help make crypto trading and offerings easily accessible on the payment platform. 

With PayPal’s user base reaching 400 million in 2022, the PYUSD stablecoin launch will also help facilitate crypto adoption and awareness, exposing a significant portion of the global population to digital currencies. 

President and CEO of PayPal, Dan Schulman, commented, “The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the U.S. dollar. Our commitment to responsible innovation and compliance, and our track record delivering new experiences to our customers, provides the foundation necessary to contribute to the growth of digital payments through PayPal USD.”