SEC wraps up investigation into PayPal’s stablecoin, removing regulatory obstacle for PYUSD.

The U.S. Securities and Exchange Commission has concluded its investigation into PayPal’s dollar-pegged stablecoin, PYUSD, deciding not to take any enforcement actions, as revealed in the company’s recent 10-Q filing.

This announcement, found in Q1 2025 financial results, comes after a subpoena issued in November 2023 that had fueled speculation about whether PYUSD could be classified as an unregistered security.

The resolution of this inquiry alleviates a potential legal concern for both PayPal and its partner Paxos, reflecting a more cautious regulatory stance towards certain stablecoin models.

Although the SEC’s subpoena was comprehensive, asking for documents related to PYUSD operations, it did not specifically allege any violations. This resolution aligns with shifts in the SEC’s approach following Gary Gensler’s departure, who previously indicated that many tokens could be viewed as securities.

The SEC’s decision to drop its inquiries could invigorate legislative efforts surrounding the GENIUS Act, a bipartisan proposal that seeks to create distinct regulatory pathways for payment stablecoins.

Formally introduced as S. 919, the legislation aims to establish licensing requirements for issuers at both the Federal Reserve and state levels, enforce 1:1 reserve backing, and mandate monthly disclosures.

PayPal PYUSD

Launched by Paxos in August 2023, PYUSD is the first stablecoin associated with a significant U.S. fintech company. Its issuance is fully backed by cash and short-term U.S. Treasury bills, with monthly attestations made available.

PayPal has incorporated PYUSD across its platforms, including Venmo, and facilitates external ERC-20 transfers. The circulating supply of PYUSD was around $879 million, making up less than 0.5% of the $241 billion global stablecoin market.

Coinbase recently eliminated trading fees for PYUSD and introduced one-click redemptions to USD, which may enhance liquidity and ease transactions for users engaging with the token.

While PYUSD has a relatively small market presence compared to established competitors like USDT and USDC, PayPal continues to position it as integral to its wider strategy for stablecoins.

The company plans to offer over 20 million small businesses the option to process payments using PYUSD throughout 2025, paving the way for PayPal to circumvent traditional card networks and establish dedicated stablecoin-based payment infrastructures.

PayPal remains aware of the custodial and legal uncertainties related to digital asset management. In its risk disclosures, the firm emphasizes that custodial crypto-assets may not be protected under standard bankruptcy laws.

It cautions that in bankruptcy situations, customer funds could potentially be considered part of the custodian’s estate. Despite these unresolved issues, the absence of SEC enforcement regarding PYUSD offers some clarification in a generally inconsistent regulatory landscape.

Stablecoin regulation in the US

The SEC’s conclusion also coincides with ongoing regulatory inquiries involving PayPal. In August 2024, the Consumer Financial Protection Bureau issued a Civil Investigative Demand concerning funding for PayPal Credit, while Germany’s Federal Cartel Office is conducting a distinct antitrust review. However, these matters are unrelated to PYUSD or its blockchain functions.

The SEC staff’s recent statement clarified that a particular category of USD-backed, fully reserved, non-yield-bearing stablecoins, termed “Covered Stablecoins,” is not classified as securities under federal laws, as they do not meet established criteria.

However, this guidance is quite narrow and fails to encompass all stablecoin types, nor does it serve as formal rulemaking or a comprehensive decision by the Commission.

While a definitive ruling on the classification of stablecoins under securities laws remains pending, the SEC’s decision in this matter suggests that regulatory clarity for dollar-pegged tokens may be developed more through legislative action than enforcement measures.