PayPal’s Stablecoin Sparks Centralization Concerns

Concerns have risen around PayPalโ€™s new stablecoin, PYUSD.

Robot having his morning coffee, worrying about PayPal's stablecoin.
Created by Kornelija Poderskytฤ— from DailyCoin
  • Concerns have risen around PayPalโ€™s new stablecoin, PYUSD.
  • PYUSD may offer transparency and potential security benefits in the crypto space.
  • The issue has reignited debate on whether mass adoption can happen without centralization.

On August 7, PayPal shocked the world by launching its dollar-backed PYUSD stablecoin. The payment giant said it intends to demystify cryptocurrencies to foster greater accessibility to digital assets.

PayPal is among the largest global payment processors, and with the resources at its disposal, its stablecoin is well-positioned to advance global crypto awareness and adoption.

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The launch has not come without concerns, however. In the 24 hours since PYUSDโ€™s reveal, crypto enthusiasts have voiced their fears that the stablecoin could undermine the core principles of decentralization and financial autonomy that underpin cryptocurrencies.

PayPalโ€™s PYUSD sparks concerns

Despite the significance of PayPalโ€™s foray into the stablecoin market, crypto community members have sounded the alarm on the potential pitfalls involved.

Analyzing the contract, self-styled smart contract hobbyist โ€œpashovโ€ noted concerns in the PYUSDY code that would enable a “centralization attack vector” due to PayPal’s ability to freeze and wipe balances.

Software Engineer โ€œcygaarโ€ added to pashovโ€™s point, saying the contract is written using an old version of Solidity and allows the developers to increase the token supply at will. He further commented, โ€œCentralized, but transparent at least.โ€

Chiming into the centralization debate, Chainlink Community Ambassador ChainLinkGod.eth dismissed these concerns, pointing out that the USDT, USDC, and USDP stablecoins all have centralized admin functions.

โ€œItโ€™s not really that surprising given the regulatory compliance requirements around handling fiat with consumers.โ€ He added.

The communityโ€™s issues with PYUSD stem beyond PayPalโ€™s involvement. Its partner in the venture, Paxos, is the source of its own controversy.

Paxos the Returning Chokepoint?

Former Blockchain Investigator Slorg raised the point that PYUSD is issued by Paxos and not PayPal, meaning its usage is subject to the latterโ€™s terms and conditions.

Slorg stated that this includes users assuming the risk and exposure of dealing with Paxos, with no guarantees made by PayPal about the tokenโ€™s performance or any resulting obligations to token holders.

In February, Binance USD (BUSD), and its issuer Paxos, were subject to enforcement action from the US Securities Exchange Commission and the New York Department of Financial Services. This led to a loss in confidence that saw BUSDโ€™s market cap tank from a high of $23 billion to $3.42 billion at the time of writing, per CoinMarketCap data.

The Way Forward?

Despite the pushback from some quarters, several prominent figures have congratulated PayPal and Paxos for launching PYUSD. Circle CEO Jeremy Allaire said it was incredible to see a company of the stature of PayPal entering the stablecoin market. 

Allaire added that this happens under regulatory clarity – a more competitive stablecoin market with clear guidelines, benefiting users through greater protections, transparency, and liquid markets. 

Partner at venture firm 6MV Crypto Carl joined in with the praise, saying PYUSD will foster โ€œmany more millionsโ€ to enter Web3 safely. Furthermore, he signed off the tweet thread inferring that PYUSD could be a bullish catalyst.

On the Flipside

  • The ability to pause transfers and freeze addresses could potentially be used to prevent fraudulent activities and protect users.
  • Introducing a stablecoin by a well-established entity like PayPal could potentially boost the overall credibility and acceptance of cryptocurrencies in the mainstream financial world.

Why This Matters

The debate surrounding PayPalโ€™s new stablecoin underscores the enduring dilemma of centralization versus decentralization – prompting consideration of centralizationโ€™s role in driving mainstream adoption.

To find out more about PYUSD, read:

PYUSD Stablecoin: How PayPal Plans to Bring Crypto to the Masses

Read about Binanceโ€™s latest stablecoin plans since severing ties with BUSD:

CZ Reveals Binanceโ€™s Plans of Exploring New Stablecoin Partnerships

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
Samuel Wan

Samuel Wan is a reporter at DailyCoin covering market affairs. Samuel's has holdings in Bitcoin and Cardano, with other minor holdings across the market.

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