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Payments giant PayPal today revealed in its quarterly report that the SEC had issued the firm with a subpoena over its stablecoin.
"On November 1, 2023, we received a subpoena from the U.S. SEC Division of Enforcement relating to PayPal USD stablecoin. The subpoena requests the production of documents," reads the report. The payments firm said it is cooperating with authorities.
A subpoena from the U.S. Securities and Exchange Commission (SEC) is a legally enforceable request for documents, testimony, or other evidence, issued as part of the agency's investigative authority into potential violations of federal securities laws.
Neither PayPal nor Paxos, the stablecoin's issuer, responded immediately to Decrypt's request for comment.
In August, PayPal and crypto infrastructure provider Paxos announced that the duo would enter the stablecoin race with their PYUSD offering. Reportedly backed by treasuries, dollar deposits and other cash equivalents, the stablecoin is expected to be pegged to the U.S. dollar and run on Ethereum.
Stablecoins purport to offer users stability amid volatile crypto prices for assets like Bitcoin and Ethereum by holding their peg to a fiat currency.
These pegs have, in the past, been known to break down, with the highest profile stablecoin collapse being Terra's UST collapse in May 2022. The largest stablecoins on the market are Tether's USDT which boasts a capitalization of nearly $85 billion and Circle's USDC which commands $24 billion.
PayPal and Paxos' stablecoin play enters a saturated market. Per CoinGecko, there are more than 90 stablecoins, though just 56 enjoy a market capitalization of more than $1 million.
The payment giant is likely hoping its brand will lift it above the competition, and analysts suggest the same.
“It’s as big of news as Larry Fink validating Bitcoin—if not bigger—because a payment system has an immediate impact,” 31Q head of research Mark Connors told Decrypt in August. “They're doing it because they want to be involved in the next evolutionary step of finance.”
The growing size of the stablecoin market, coupled with Terra's spectacular collapse, has also attracted American regulators.
“It’s more important than ever that Congress enact legislation to provide comprehensive digital asset regulation, especially for stablecoins,” Patrick McHenry (R-NC), chairman of the House Financial Services Committee, said in a written statement. “We are currently at a crossroads to keep America at the forefront of digital asset innovation.”
Edited by Stephen Graves