On August 7, 2023, Paypal, the leading payment company, announced the launch of its own stablecoin, PYUSD. Unfortunately, initial excitement was quickly replaced by fear, as certain pitfalls within the project came to light. In this article, we’ll take a look at 3 critical issues you should pay attention to before using PayPal's stablecoin.
1. Unreliable issuer and network security
The issuance of PayPal's stablecoin is entrusted to Paxos, a US-based company. This is the same organization that used to mint Binance USD (BUSD), the stablecoin of major crypto exchange Binance. In February 2023, Paxos stopped issuing BUSD because of regulatory pressure from US authorities. Regulators claimed that tokens were illegally minted and circulated as unregistered securities.
This situation raises concerns about US regulators potentially classifying other dollar-pegged stablecoins as unlawfully issued securities. In such a case, Paxos might cease PYUSD minting operations.
US regulators are still scratching their heads about how to label digital currencies, except for Bitcoin which is regarded as a commodity. The rest of the cryptocurrencies could potentially be crammed into the list of illegally issued securities.
PYUSD runs on the Ethereum network, second only to Bitcoin in terms of capitalization and popularity. However, ETH's status remains unclear, presenting risks for PYUSD in case Ethereum falls victim to the US watchdogs.
2. Code confusion
Crypto community members have snooped on strange details within the stablecoin code, raising the possibility that PYUSD could pull a “central bank” move and play puppet master with your accounts. That means PayPal could freeze, unfreeze or even block users’ access.
This approach sounds a lot like a central bank digital currency (CBDC) — a virtual analogue of fiat currencies completely controlled by the government. As of the time of writing, PayPal representatives have not explained anything about these intriguing code attributes.
3. Proliferation of scam tokens
The launch of PayPal’s stablecoin prompted an influx of fake PYUSD tokens. There are already 60+ scam tokens on the market, and some of them are actually highly demanded. For instance, a bogus stablecoin PYUSD has amassed a trading volume nearing $3 million.
The problem stems from the ease of generating new coins. Creating a new coin takes just about 23 seconds, requiring no special knowledge or skills.
While the PayPal team could start counter these negative rumors and shut down this money inflow to scammers, the company has remained silent. Consequently, many potential PYUSD users have already been affected by these scams.
Can we trust PYUSD?
Until the PayPal team clarifies the rules and concerns that have come up, it is better to stay away from PYUSD. Despite the stability and resources offered by the largest payment system, unanswered questions cast a shadow over the stablecoin’s stability.
But remember, even the big bosses stumble. Just look at Meta and their Libra coin fiasco in January 2022.
Let’s also not forget Telegram’s efforts to launch its own cryptocurrency, TON, which ceased in May 2020 under the same reason — regulatory pressure.
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This article is not an investment recommendation. The financial transactions mentioned in the article are not a guide to action. Itez is not responsible for possible risks. The user should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.
