PayPal’s new stablecoin offering has caught the attention of regulators.
The payments giant said in a regulatory filing Thursday (Nov. 2) that it had received a subpoena from the Security and Exchange Commission’s (SEC) Division of Enforcement that was related to its stablecoin.
“The subpoena requests the production of documents,” the filing said. “We are cooperating with the SEC in connection with this request.”
The filing offered no further information on the subpoena. PYMNTS has contacted PayPal and for comment but has not yet gotten a reply. An SEC spokesperson told PYMNTS the commission does not “comment on the existence or nonexistence of a possible investigation.”
PayPal launched its stablecoin in August, saying it wanted to “contribute to the opportunity stablecoins offer for payments and is 100% backed by U.S. dollar deposits, short-term U.S Treasuries and similar cash equivalents.”
The coin, redeemable 1:1 for U.S. dollars and issued by Paxos Trust Co., allows customers to fund purchases with PayPal USD by selecting it at checkout, and convert any of the cryptocurrencies supported by PayPal to and from PayPal USD.
“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,” Dan Schulman, then-president and CEO, of PayPal, said at the time.
But as PYMNTS noted around the same time, while the conventional wisdom is that stablecoins are inherently stable due to their tie to the dollar, “the past several months and years show that on occasion, some stablecoins have managed to ‘break the buck’ and fall below that dollar peg.”
In addition, the regulatory picture remains uncertain. The SEC earlier this year issued Paxos a Wells Notice to cease minting the Binance USD stablecoin. In the wake of that action, and as new issuance was suspended, investors drained billions of dollars out of the stablecoin.
Barr noted that stablecoins represent a form of private money that borrows the trust of the Fed. The country’s central bank has a strong interest in making sure stablecoins operate within the bounds of regulation to protect financial stability and payments system integrity, he said.