In a quarterly earnings report filed on Thursday, November 2, the financial technology giant PayPal (NASDAQ: PYPL) revealed that it had received a subpoena from the Securities and Exchange Commission (SEC) the day before.
According to the document, SEC’s Division of Enforcement is seeking documentation related to PayPal USD (PYUSD). PayPal also stated it is fully cooperating with the SEC but provided no further details on the matter.
In the same document, the financial giant also stated it had received a civil investigative demand (CID) from the Consumer Financial Protection Bureau (CFPB) in October pertaining to investigation and error-resolution obligations under Regulation E, the presentment of transactions to linked bank accounts.
PayPal also stated that CFPB is requesting relevant documentation and that it is fully cooperating with the watchdog.
PayPal’s foray into cryptocurrencies
PayPal now has a years-long history with digital assets as it has enabled its users to buy and sell cryptocurrencies already in 2020. As of August 2023, it is also the first major financial firm to launch its own stablecoin – PayPal USD.
PYUSD is a USD-pegged stablecoin on the Ethereum (ETH) blockchain issued by Paxos. According to PayPal, it is fully backed by short-term Treasuries, USD deposits, and similar assets. The token also rose quickly after getting launched and had a market cap of $158,784,990 at the time of publishing according to data from CoinMarketCap.
Despite its success, PayPal’s stablecoin also faced criticism quickly after getting launched due to the developers’ ability to freeze and wipe out users’ accounts. The assessment was itself criticized by certain voices in the industry like David “JoelKatz” Schwartz, CTO at Ripple who described the supposed weakness as standard practice stemming from the obligation to redeem the stablecoin for dollars.
SEC continues pressuring the cryptocurrency industry
Considering the SEC’s actions targeting various actors within the cryptocurrency industry, the subpoena issued to PayPal is hardly surprising. The Commission has been closely scrutinizing stablecoins citing several main concerns.
The first of these is the possibility they will undermine the authority of central banks and the second is they might cause major financial turmoil if they crash as was the case after the collapse of TerraUSD (UST) in 2022.
The SEC has also maintained pressure on the broader cryptocurrency industry despite recently suffering some defeats concerning Grayscale and some setbacks concerning Ripple. Its most recent major actions include the lawsuits against SafeMoon (SFM) and its executives.