Stablecoin issuer Paxos recently released a transparency report on its Ethereum-based stablecoin, PayPal USD (PYUSD). The report highlights that the coin is fully backed by assets, providing detailed information about the assets held and their value. This article aims to critically analyze the report and delve into the implications of its findings.
According to the transparency report, the total assets held in PayPal USD custody exceed the token balance, ensuring full backing for the stablecoin. As of August 31, 2023, the total tokens outstanding stood at $44.4 million, while the total notional position value amounted to $44.5 million. This alignment between assets and token balance instills confidence in PYUSD holders, as it ensures that the stablecoin represents a tangible store of value.
U.S. Treasury Reverse Repurchase Agreements
The majority of PYUSD’s assets are backed by U.S. Treasury reverse repurchase agreements, which are held in custody by Paxos. These agreements constitute nearly 97% of the total assets in PYUSD custody, amounting to approximately $43 million. The usage of such agreements mitigates risk by providing a contractual arrangement that guarantees the sale of securities at a specified price. Paxos reassures investors by stating that their repurchase agreements are overnight maturity, overcollateralized with U.S. Treasuries, and backed by reputable financial institutions. This safeguards the stablecoin and ensures that even in the event of a counterparty default, Paxos can liquidate the U.S. Treasury collateral to protect investors’ interests.
Apart from the U.S. Treasury reverse repurchase agreements, Paxos also holds $1,500,146 of fiat currency as cash deposits at insured depository institutions. The firm provides a link to the IntraFi network, enabling interested parties to access a list of insured depository institutions where funds may be placed. It is worth noting that Paxos does not currently have any active private uninsured deposit insurance policies. Therefore, not all deposits are covered by the FDIC or private insurance, making Paxos still susceptible to losses in the event of a bank insolvency. This transparency regarding the limitations of deposit insurance helps investors make informed decisions and manage their risk exposure accordingly.
Implications and Adoption
The publication of this transparency report comes shortly after the launch of PYUSD on August 7, indicating a commitment to maintaining open communication with stakeholders. The report aims to build trust and credibility in the stablecoin market by demonstrating that PYUSD is fully backed by assets. This level of transparency is crucial for the wider adoption of stablecoins in the cryptocurrency ecosystem.
Moreover, the adoption of PYUSD by BitPay as a payment option further validates the stability and utility of the stablecoin. The inclusion of PYUSD alongside other USD-pegged stablecoins like USD Coin (USDC) expands the options available to BitPay users, enhancing the liquidity and usability of PYUSD.
Paxos’ transparency report for PayPal USD provides valuable insights into the backing and security measures taken to ensure the stability of the stablecoin. By disclosing the details of its asset holdings and their collateralization, Paxos enhances trust and confidence among PYUSD holders and potential investors. The report sets a positive precedent for future transparency initiatives in the stablecoin industry, ultimately contributing to the mainstream adoption of stablecoins as reliable stores of value.