PYUSD: The encryption journey of payment giant PayPal

300 trillion dollars of blunder

In the early morning of October 10, 2025, a dramatic scene unfolded in the crypto market as stablecoin issuer Paxos unexpectedly minted and then destroyed 300 trillion PayPal USD (PYUSD). According to CoinMarketCap, PYUSD currently has a market capitalization of only about $2.6 billion, and the amount of erroneous minting is equivalent to 113,250 times the circulating supply. If valued at $1, the total erroneous minting amount of PYUSD is more than twice the global GDP, far exceeding the total market capitalization of the entire U.S. crypto market.

This means that, firstly, even if Paxos has sufficient reserves, facing a supply of 300 trillion, its asset collateral ratio will instantly drop to zero, and the PYUSD held by users will also become worthless, leading to a collapse of market confidence and triggering a chain reaction; secondly, if this massive amount of PYUSD is used for on-chain transactions and captured and utilized by arbitrage bots or market makers, even if only for a few brief seconds, it will cause a drastic decoupling of the PYUSD price.

Due to the nature of fiat-backed stablecoins, Paxos possesses “god-like powers” (absolute minting/burning authority), which ultimately led to a serious human error with expected consequences. However, this “god-like power” also saved PYUSD from an instantaneous collapse during the error correction process.

PayPal USD (PYUSD) is a dollar-pegged stablecoin launched by global payment giant PayPal in August 2023, and it is the first compliant stablecoin issued by a “non-crypto” company. This stablecoin is 100% backed by cash, short-term U.S. Treasury bonds, and cash equivalents, issued by New York cryptocurrency financial services company Paxos Trust, and is being gradually rolled out to PayPal customers in the U.S. At that time, the stablecoin market was dominated by two major players: Tether's USDT held the top position with a market capitalization of over $100 billion, while Circle's USDC ranked second with approximately $30 billion.

PayPal is a leading global third-party payment platform. As of the second quarter of 2025, the company has 438 million active users and approximately 20 million merchant accounts, with a total transaction amount of $1.68 trillion processed in the past year. Its services cover over 200 markets, and the PYUSD it issues will be independently audited by a third-party accounting firm and is subject to strict regulation by the New York Department of Financial Services (NYDFS). With a massive user base, a mature payment network, and deep regulatory compliance experience, PayPal seems to inherently possess the advantageous foundation for issuing stablecoins — all of this suggests that PYUSD could easily replicate PayPal's success in the traditional payment field and quickly seize a share of the stablecoin market.

But is that really the case?

Why did PayPal launch a stablecoin?

A stablecoin is a type of cryptocurrency that is pegged to real-world assets (such as fiat currencies, gold, or a basket of assets), designed to maintain a relatively stable price through specific mechanisms. Its core objective is to address the issue of high price volatility in traditional cryptocurrencies (such as Bitcoin), serving as a “safe haven” and an efficient payment tool in the crypto economy. For example, a stablecoin pegged to the US dollar (such as USDT, USDC, PYUSD) typically has a value that is equal to 1 US dollar.

Stablecoins are the bridge between traditional finance and the crypto world, representing the “internetization of value”. They serve as “base currency” in the crypto ecosystem, providing functions such as a measure of value, a medium of payment, and a means of storing value.

Cross-border transactions of traditional fiat currencies are like relay delivery of a physical package through multiple international courier companies, where each courier company needs to constantly verify information to ensure consistency, making this process very time-consuming. Each courier company has different and fixed operating hours, charges certain fees, service fees, and exchange rate differences, and any issue in one of the links (such as information errors or damaged packages) can delay the entire process. The core is the “institutional trust model”, meaning we trust these centralized institutions to accurately help us record and transfer value.

In the currency trading of the crypto world, it's like sending a digital file through email. The transaction initiator creates a transaction and then broadcasts it to the entire blockchain network. Nodes automatically verify the source and balance and transfer the funds, then record it on a globally shared, unique, and tamper-proof public ledger. The whole process requires no intermediaries and can be completed in just a few minutes or even seconds. At its core is the ****“mathematical trust model”, which means we no longer rely on the reputation of any institution, but trust the security and accuracy of mathematical algorithms, cryptography, and distributed networks.

The currency trading in the crypto world has fundamentally restructured the way value is transferred, simplifying processes and eliminating unnecessary intermediaries. According to data from the World Bank, the average cost of international remittances globally is as high as 6.2%. For sending $200 to Africa, the average fee exceeds 8%, while transferring the same amount across borders using PYUSD can reduce costs to below 1%, and achieve real-time arrival.

As a traditional payment giant, PayPal has chosen to actively embrace stablecoins, primarily motivated by addressing its own growth pressures, improving payment efficiency, and aligning with the wave of financial digitalization.

First of all, before and after the launch of PYUSD, PayPal is facing growth pressure, with the transaction profit margin of its core payment business showing a downward trend, and its stock price is also under pressure, urgently needing to find new growth points. At this time, the stablecoin market shows enormous profit potential. Taking USDT as an example, its issuer Tether has generated investment income from reserve assets (mainly US Treasury bonds). In 2024, Tether's holdings of US Treasury bond investments are about 113 billion, and its bond holdings exceed those of all countries except for 17 national governments, including Germany, the UAE, and Australia, generating a net profit of about 13 billion dollars.

PayPal's stock, as shown in the image above, has decreased by about 80% from its ATH based on the trend.

Secondly, based on the PayPal ecosystem and the huge demand for user payments, PYUSD can effectively enhance transaction efficiency and maintain account value through incentive policies. Simply put, PYUSD aims to become a medium of exchange for U.S. users to purchase goods, send, and receive dollars. PYUSD supports:

• Transfer PYUSD between PayPal and compatible external wallets
• Use PYUSD for peer-to-peer payments
• Select PYUSD as the payment method at checkout.
• Convert any cryptocurrency supported by PayPal to PYUSD

As a stablecoin supported within the PayPal network, PYUSD combines PayPal's experience in payments with the high speed, low cost, and high programmability of blockchain protocols, significantly improving payment efficiency and reducing payment friction for users in virtual environments, facilitating the rapid transfer of value; and with the collaboration of PYUSD with more blockchains, PYUSD can not only be deployed within the PayPal ecosystem but also circulate in external wallets and Web3 application communities, as well as exchanges.

In the future, PayPal hopes to leverage global payment scenarios to build PYUSD, a US dollar stablecoin, into a bridge of fiat currency and Web3 between consumers, merchants, and developers, covering scenarios such as remittances, B2B payments, and digital goods transactions, helping consumers, merchants, and developers to seamlessly connect fiat and digital currencies. PYUSD does not operate in isolation in the payment field; instead, it interacts with other stablecoins to jointly address cross-border transaction issues, striving to achieve faster and lower-cost user payment solutions. For instance, the issuer of PYUSD, Paxos, will launch a stablecoin payment platform in October 2024 that can support PYUSD, USDC, and Paxos's own USDP simultaneously, allowing payment service providers to easily implement instant conversions between US dollars and these stablecoins. Additionally, in June 2025, PayPal will collaborate with global leading payment service provider Fiserv to enable the circulation and conversion of PYUSD and FIUSD within each other's platforms and ecosystems. For users, a world that is compatible with multiple stablecoins, allowing free choice according to demand, may be a more anticipated world, and PYUSD, which can interact with other stablecoins, will better adapt to interoperability needs.

Finally,PayPal is issuing a stablecoin to also layout its future trading market. The issuance of PYUSD can, on one hand, enrich its product line, creating new value by leveraging its vast user base (hundreds of millions of active users globally) and merchant network; on the other hand, PayPal hopes to extend its advantages in the payment field to the emerging cryptocurrency and blockchain sector, providing its users with a better payment experience, aiming to occupy a favorable position in future market competition.

The current stablecoin market can be subdivided into two parts based on the users of stablecoins and compliance needs, namely the compliant world and the grassroots world.

The compliant world is the elite game of PYUSD and USDC. There, transparency, regulatory compliance, and institutional adoption are core metrics, with PYUSD and USDC competing for the digital upgrade market of traditional business and finance. The advantage of USDC lies in its transparency and trust as the cornerstone of DeFi, making their competition a race within the elite circle; the grassroots world is the survival tool of USDT. There, the entry threshold, ease of use, and cost are decisive factors. Users served by USDT may not have bank accounts, identification, or even stable internet connections. They conduct USDT transfers through Telegram bots, without Gas fees and without complex wallet addresses, as simple as sending a voice message. This is a parallel system that bypasses all traditional financial infrastructure.

By 2025, the market capitalization of PYUSD is expected to grow to approximately $2.64 billion, making it the sixth largest stablecoin in the world, but its market share remains relatively small compared to the two giants.

So, where does PYUSD**'s future lie outside the grassroots market dominated by USDT and the DeFi market controlled by USDC?

The answer is right in the PayPal ecosystem.

Unlike USDT, which primarily serves cryptocurrency trading, the biggest advantage of PYUSD lies in its seamless integration and deep incorporation with PayPal's vast existing payment network. On one hand, PYUSD** can upgrade stablecoins from mere “payment tools” to “interest-bearing assets”**, such as by providing users holding PYUSD with an annual yield of about 3.7%, allowing users to avoid the need to transfer funds back and forth between bank accounts and payment tools, making PYUSD itself an integrated solution for payment and savings; on the other hand, PYUSD can become a breakthrough for small and medium-sized enterprises in cross-border trade. For the 20 million small sellers on the PayPal platform, cross-border payments have always been a pain point. Traditional bank wire transfer fees are high and slow, whereas with PYUSD, American sellers can make real-time, low-cost payments to suppliers anywhere in the world. When American merchants need to pay overseas suppliers, using PYUSD can avoid cumbersome currency exchanges, reduce friction costs, and save time. This path, stemming from real business needs, is difficult for other stablecoins to replicate.

When we discuss PYUSD, we are actually discussing two completely different topics: one is the evolution of stablecoin technology itself, and the other is the different paths of financial inclusion. PYUSD represents a top-down, compliance-first approach—transforming existing financial infrastructure to make cross-border payments more efficient and cost-effective, which is an elegant path of reform. In contrast, USDT represents a bottom-up, demand-driven approach—directly serving those abandoned by traditional finance, providing them with the most basic financial tools, which is a rough path of revolution. These two paths are not mutually exclusive.

In the foreseeable future, we will live in two parallel worlds at the same time: in one world, multinational companies efficiently conduct cross-border settlements through PYUSD; in another world, villagers in rural Africa receive remittances from overseas relatives through USDT. The future of the stablecoin market is likely not a “winner-takes-all” scenario, but rather a coexistence of segmented markets, where each stablecoin operates on its own track, serving different users and solving different problems, such as USDT continuing to dominate the **grassroots economy and emerging markets, USDC as a reliable cornerstone for DeFi and institutional finance, while PYUSD continues to delve into compliant commercial payments, cross-border trade for small and medium-sized enterprises, and everyday transaction payment fields.

The value of PayPal's issuance of PYUSD does not lie in whether it can replace USDT or USDC, but in truly addressing the pain points of the “compliance world” that other stablecoins cannot reach on its own battlefield—it's not about replicating the success of USDT or USDC, but rather carving out a unique path that belongs solely to compliance giants, focusing on the payment track of real-world needs.

The Development History of PYUSD

The development of PYUSD showcases an important attempt by traditional financial giants to enter the cryptocurrency space.

Before the official launch of PYUSD, PayPal has been exploring the cryptocurrency field for nearly a decade. As early as 2013, PayPal began to pay attention to cryptocurrencies. By 2020, PayPal had supported U.S. users in buying and selling mainstream cryptocurrencies, and these efforts laid the technological and user foundation for the launch of PYUSD.

The preparation work for PYUSD can be traced back to 2022, with on-chain records indicating that its first minting test occurred in November 2022, totaling 1.1 million PYUSD. The issuance plan for PYUSD has not been smooth sailing; the original plan to issue in collaboration with FTX was halted due to the latter's collapse, and the subsequent issuance plan was paused in early 2023 due to an investigation by the New York State Department of Financial Services into its partner Paxos.

On August 7, 2023, PayPal officially announced the launch of its stablecoin PYUSD on Ethereum. As an ERC-20 token issued on Ethereum, PYUSD can seamlessly connect with external developers, wallets, and Web3 applications, much like a new smartphone equipped with the most mainstream operating system, allowing immediate access to a vast application store, significantly lowering the usage threshold for users and integration costs for developers. Furthermore, PYUSD is issued by Paxos Trust Company and is promised to be 100% backed by cash equivalents such as dollar deposits and short-term U.S. Treasury bills, with monthly reserve proofs published regularly to ensure the security of PYUSD.

After its launch, PYUSD quickly attracted market attention, reaching a market capitalization of 300 million USD in about five months, and landing on major exchanges such as Coinbase and Kraken. The large user base and deep liquidity on these exchanges create a perfect synergy with the applications within the PayPal payment network, allowing users to conveniently trade and acquire PYUSD on exchanges like Coinbase and then transfer it to their PayPal or Venmo accounts for everyday payments and transfers.

In August 2024, the market capitalization of PYUSD exceeded $1 billion for the first time, growing at a pace far exceeding that of USDT and USDC. The primary issuance platform for its tokens has shifted from the Ethereum network to the Solana network. Compared to Ethereum's security but slower transaction speed and higher payment fees, Solana's advantages include instant settlement, an average transaction fee of less than 1 cent, an ecosystem with over 2,500 developers, and unique token expansion capabilities that support features such as confidential transfers, transfer hooks, and memo fields required by PYUSD.

The early growth of PYUSD is mainly attributed to the incentives in decentralized finance (DeFi) ecosystems such as Solana. DeFi (decentralized finance) is an application of blockchain technology that aims to decentralize financial services through smart contracts and distributed ledgers, providing users with greater freedom and lower transaction costs. DeFi encompasses a variety of financial services including lending, financing, derivatives, trading, and insurance, and has rapidly emerged globally in recent years, attracting widespread attention and discussion.

According to data from Syndica_io, at that time 81% of PYUSD on Solana was used for DeFi protocols, with the main case being its use in the Kamino Finance project. Kamino Finance is a DeFi protocol proposed in 2022 that integrates lending, providing liquidity, and leverage functions. On Kamino, approximately 470 million PYUSD can enjoy an annualized return of 13.24%, with depositors receiving over 1.2 million PYUSD in additional rewards every week. In addition, the interest rate paid by PYUSD borrowers on Kamino is 3.28%, with a utilization rate of 5.31%; while on Kamino's competitor lending protocol MarginFi, the interest rate is only 1.54%, with a utilization rate of 4%. These incentives significantly boosted demand in the short term, causing the circulation of PYUSD on the Solana chain to surpass that of its native chain Ethereum, with Solana's market share at 64% and Ethereum's market share at 36% as of August 2024.

However, such a high incentive amount cannot be sustained for long. After PYUSD reduced the yield opportunities for major decentralized finance platforms like Kamino, the market value of the PYUSD stablecoin dropped from its peak of 1 billion dollars in August to 618 million dollars, a decrease of about 40%.

Entering 2025, the development of PYUSD shows a more diverse and in-depth trend:

In early 2025, PayPal began offering an annual yield of 3.7% on the balances of PYUSD for eligible U.S. users, transforming PYUSD from a payment tool into a yield-generating digital asset, which enhanced its appeal to retail users.

In February 2025, the U.S. Securities and Exchange Commission (SEC) concluded its 16-month investigation into PYUSD that began in November 2023, announcing that no enforcement action would be taken, eliminating regulatory uncertainty for PYUSD, boosting market confidence, and paving the way for its broader future applications.

In April 2025, PYUSD expanded its collaboration with the exchange Coinbase, which began to support the 1:1 exchange of PYUSD with USD, while waiving fees for retail and institutional customers. Additionally, plans were made to explore new on-chain use cases for PYUSD in partnership with PayPal, with the intention to additionally support major PayPal merchant partners in using the stablecoin. This collaboration has expanded the adoption, distribution, and usage of PYUSD, enhancing its competitiveness.

In May 2025, PayPal unveiled its brand new AI-based autonomous financial operating system, Financial OS, at its 2025 Dev Days. Financial OS provides infrastructure such as digital identity, smart wallets, agency communication protocols, and implementation APIs. PayPal aims to integrate the Financial OS system with PYUSD to create an AI-driven financial infrastructure, hoping that AI agents will assist humans in executing complex business processes in the future.

In June 2025, the market capitalization of PYUSD returned to 1 billion USD, marking a further enhancement of PYUSD's market recognition. In the same month, PayPal partnered with global leading payment service provider Fiserv to enable the circulation conversion of PYUSD and FIUSD on each other's platforms and ecosystems, expanding the use cases of PYUSD.

In September 2025, PYUSD** further carried out technological innovation and ecological expansion**. On one hand, PYUSD expanded to include 9 new blockchains, such as Avalanche, Aptos, and Tron, through cooperation with the cross-chain interoperability protocol LayerZero, with each blockchain having its own characteristics, allowing users to choose freely based on actual needs. This expansion also introduced a permissionless version called PYUSD0, serving as an efficient “cross-chain expressway”, aimed at eliminating liquidity barriers between different blockchains, marking the evolution of PYUSD from a multi-chain stablecoin to a full-chain stablecoin liquidity; on the other hand, in the Asian market, PYUSD introduced KRW1 (a stablecoin backed by the Korean Won) through cooperation with BDACS, facilitating local remittances and payments.

In the same month, PayPal partnered with the decentralized finance platform Spark to **integrate PYUSD into its lending market SparkLend. This collaboration aims to expand the on-chain liquidity of PYUSD from an initial $100 million to $1 billion, leveraging Spark's existing $8 billion stablecoin reserve pool to provide deep liquidity for PYUSD, enabling it to quickly become an important underlying asset in the DeFi ecosystem.

During the two-year development of PYUSD, it has rapidly expanded its application boundaries through partnerships with players from different sectors. Its cooperative ecosystem can mainly be divided into the following four categories:

Business Model of PYUSD

Stablecoins themselves have clear profit potential. PayPal issues PYUSD, primarily targeting the following profit models:

• Floating Reserve Income: This is the most direct way for stablecoins to generate profit. PYUSD is pegged to the US dollar at a 1:1 ratio, supported by US dollar deposits, short-term US Treasury bonds, and similar cash equivalents. The issuer can earn interest income by managing these reserve assets (primarily invested in safe assets like US short-term treasury bonds). For example, as a reference, its main competitor Tether (the issuer of USDT) achieved a net profit of $1.48 billion in the first quarter of 2025.
• Transaction and Settlement Revenue: PYUSD is deeply integrated into PayPal's payment ecosystem. By facilitating the circulation of PYUSD within its network, PayPal can collect potential transaction fees or settlement service fees. For example, the transaction fee rate for the cryptocurrency payment service provided by PayPal is approximately 0.99%.
• Exploring Profits in the DeFi: PayPal is also actively exploring the application of PYUSD in the decentralized finance (DeFi) space, such as through partnerships with DeFi protocols like Spark. Typically, the DeFi world can generate profits by providing liquidity, lending, and other services. As a base asset, PYUSD's issuer can also benefit indirectly.

The marketing of PYUSD mainly occurs through the following methods:

• Payment scenarios. PayPal relies on its payment background covering over 400 million users and 20 million merchants to naturally embed PYUSD into high-frequency essential trade scenarios, creating real usage demand. For example, PayPal plans to offer PYUSD as a payment option to over 20 million small and medium-sized merchants on its platform by the end of 2025, especially for U.S. merchants making payments to overseas suppliers. Additionally, PayPal has integrated payment service platforms like Hyperwallet to help businesses in need make large payments in PYUSD to freelancers and contractors around the world.
• Yield Incentives (Providing Holding Rewards). PayPal CEO Alex Chriss has clearly pointed out that existing payment methods are already convenient enough for U.S. users, and stablecoins lack sufficient usage motivation. Early PYUSD offered annualized deposit yields of 13.24% and borrowing rates of 3.28% in decentralized finance (DeFi) ecosystems such as Solana to attract users, leading to rapid growth in its user base. Currently, PayPal's incentive measures target retail users on one hand, such as offering users an annualized yield of 3.7% on PYUSD starting in the summer of 2025; on the other hand, they target institutional users, as PayPal is preparing to collaborate with Anchorage Digital to launch a reward program for institutional holders, aimed at allowing users to earn yields without the need to stake, borrow, or repeatedly use assets.
• Cooperation with exchanges for promotion. PayPal collaborates with major exchanges such as Coinbase and Kraken to promote PYUSD using the large user base and deep liquidity within the exchanges.

PYUSD****Practical Compliance Insights

For publicly listed companies like PayPal that are subject to multiple regulations, compliance with the law is a legal prerequisite for conducting business.

The regulations of the New York State Department of Financial Services (NYDFS) clearly require financial institutions under its jurisdiction to establish, document, and maintain effective KYC and AML programs to prevent financial crimes; the U.S. Bank Secrecy Act and global anti-money laundering financial actions mandate that financial institutions fulfill compliance obligations. The issuers of PYUSD, PayPal and Paxos, operate globally, and failure to comply with these rules would mean an immediate loss of license and the complete termination of business.

In simple terms, non-compliance means closing the doors, which is the most fundamental and direct reason for PYUSD's compliance.

On the basis of meeting legal requirements, a robust compliance system has brought strategic advantages to PYUSD, creating a differentiated advantage in the fierce competition among stablecoins. On one hand, having a sound compliance procedure makes traditional users, large enterprises, and traditional financial institutions who are unfamiliar with cryptocurrencies feel at ease; on the other hand, if PYUSD is widely used for illegal activities, PayPal and Paxos will face hefty regulatory fines, criminal charges, and reputational damage, making adhering to compliance the lowest-cost risk management strategy.

Finding Compliance Partners

PYUSD is a stablecoin issued through the collaboration between PayPal and Paxos Trust Company. PayPal, as a payment platform with a large user base, is responsible for the application scenarios and promotion of PYUSD, serving as the “driver” of PYUSD. Meanwhile, Paxos is responsible for the technical support, compliant issuance, redemption, and management of reserve assets for PYUSD, acting as the “engine manufacturer and maintainer” of PYUSD. This division of labor allows PYUSD to leverage PayPal's traffic while relying on Paxos's compliance advantages.

Paxos is a trust company and technology provider based in New York, USA, regulated and approved by the New York State Department of Financial Services (NYDFS). Its core business revolves around blockchain technology, providing infrastructure services for the financial system, primarily including stablecoin issuance (such as PYUSD, USDP, etc.), cryptocurrency trading and custody, asset tokenization, and settlement.

Paxos currently holds a limited-purpose trust license in New York State, which serves as the legal basis for its core businesses such as stablecoin issuance and digital asset custody. In addition to the existing state-level license, Paxos submitted an application to the Office of the Comptroller of the Currency (OCC) in August of this year, seeking to obtain a national trust bank charter. This is not a brand new application; Paxos had previously received conditional approval from the OCC in 2021, but that approval lapsed due to not meeting all the operational conditions within 18 months. This reapplication is viewed within the industry as a response to the intensified competition for compliance following the establishment of a federal regulatory framework for stablecoins under the GENIUS Act. If this application is approved, it would elevate Paxos's regulatory level from state to federal, allowing it to operate nationwide and be subject to federal oversight, thereby making it easier to gain recognition from traditional large institutional clients.

Starting from September 2023, Paxos has been continuously releasing PYUSD monthly reserve reports, outlining the status of PYUSD reserves. In addition, Paxos also continues to publish public third-party attestations of the value of PYUSD reserve assets, which are issued by independent third-party accounting firms and conducted in accordance with the attestation standards set by the American Institute of Certified Public Accountants (AICPA), providing a solid foundation for the compliance of PYUSD.

Complete KYC and AML

The cryptocurrency industry has seen rapid growth in recent years, attracting not only legitimate businesses but also the attention of malicious actors. With the rise of digital assets, governments and regulatory agencies around the world have strengthened KYC (Know Your Customer) and AML (Anti-Money Laundering) regulatory requirements. KYC and AML are two closely related compliance standards established to prevent crime, guard against fraud, combat financial crime, and protect the security and transparency of blockchain transactions. Together, they form a “firewall” to identify and block illegal financial activities. KYC is the “gatekeeper,” primarily responsible for assessing the reliability of customers as they enter. AML is the “patroller,” mainly responsible for monitoring customers' transaction behaviors after they enter, ensuring that users are not engaged in illegal transactions.

In 2025, multiple cryptocurrency companies faced heavy penalties due to AML/KYC compliance deficiencies. For example, the cryptocurrency exchange OKX was fined for issues related to deficiencies in its anti-money laundering framework, and the U.S. digital payment company Block Inc. was also fined by the New York Department of Financial Services for similar reasons. For ordinary users, failing to comply with KYC regulations can lead to legal and financial risks, such as selling non-real-name exchange accounts to others, which can result in the account being used for money laundering and other criminal activities, leading to legal liability for the seller. Additionally, there is a risk of asset theft when investing with accounts registered under someone else's identity.

What are KYC and AML

There has been no clear disclosure report regarding the construction of PYUSD in terms of KYC and AML. However, after the U.S. Securities and Exchange Commission (SEC) initiated an investigation into PYUSD in November 2023, Paxos actively cooperated with the regulatory investigation. By February 2025, the SEC concluded its 16-month investigation into PYUSD without taking any enforcement action, demonstrating its compliance with regulatory standards, which eliminated regulatory uncertainty for PYUSD, boosted market confidence, and paved the way for its widespread future application.

Technical Security Assurance

Returning to the beginning of the article, the events of minting and burning stablecoins expose the inherent risks of technical governance and internal controls in centralized stablecoins. While fiat reserves and regular audits are certainly important, they cannot eliminate the risks associated with technical governance and internal controls.

But does this mean that stablecoins are not safe enough in transactions? This incident instead proves the advantage of transparency in blockchain technology. After detecting the anomaly, Paxos immediately activated its emergency mechanism, recovering all misissued tokens through destruction within 22 minutes, ensuring that the total supply returned to normal levels. Compared to errors that traditional finance may hide for a long time, blockchain errors are easier to detect and correct. In this sense, PYUSD may be safer and more trustworthy, given the regulatory framework and the transparency of blockchain.

Future stablecoin issuances need to reconsider how to maintain rapid intervention capabilities (centralization) while minimizing the probability of human error (decentralization/automation processes). For example, at the technical level, outlier detection and time-locking can be set up, with an outlier detection mechanism embedded in the smart contract layer. For instance, any single minting or burning amount exceeding a certain threshold of the total reserves (e.g., 10%) must initiate a cooling-off period at the hourly level, or be automatically halted by the system, then wait for manual approval; at the internal control level, multi-signature should be enforced, and minting/burning operations must adopt a strict multi-signature mechanism, requiring at least three executives with different functional backgrounds (such as technology, finance, compliance) to jointly approve and sign, ensuring the validation of input parameters.

Conclusion

Looking back at the development of PYUSD, we can see a clear strategic path: rather than pursuing direct competition with USDT and USDC in the trading arena, it focuses on deepening payment scenarios, especially cross-border business payments.

PYUSD may never replicate USDT's dominance in cryptocurrency trading, nor does it need to. It is pioneering a new path that connects traditional commerce with the world of digital assets**——**a path that is more compliant, more focused on real business needs, and more acceptable to mainstream markets.

Centralization and decentralization are not opposites, but rather tools to choose from. For ordinary users and small businesses, reliable, user-friendly, and compliant payment tools sometimes hold more practical significance than idealized decentralization.

The story of PYUSD is far from over; it represents a possibility of integration between traditional finance and the crypto world — not disruption and replacement, but integration and gradual progress.