PayPal's PYUSD Clears Major Regulatory Hurdle as SEC Ends Investigation
By: Isha Das
In a significant development for the cryptocurrency sector, the U.S. Securities and Exchange Commission (SEC) has concluded its investigation into PayPal's stablecoin, PayPal USD (PYUSD), deciding not to pursue any enforcement action. This decision, revealed in PayPal's first-quarter financial results for 2025, marks the cessation of a probe initiated in November 2023. The inquiry had initially caused concerns within the industry regarding the possible classification of PYUSD as an unregistered security.
The SEC's investigation demanded extensive documentation related to PYUSD's activities but refrained from alleging any specific legal violations. This decision reflects a nuanced regulatory stance towards certain stablecoin frameworks, especially in light of recent changes in SEC leadership. Since the departure of Gary Gensler, who frequently argued for tokens as securities, the regulatory approach appears more measured. The conclusion of this investigation also potentially strengthens legislative efforts in support of the GENIUS Act, which promotes a separate regulatory pathway for payment stablecoins.
Paxos, the New York-based regulated trust company behind PYUSD, launched this payments-branded stablecoin in August 2023, fully backed by cash and U.S. Treasury bills. Integrated within PayPal’s ecosystem, including platforms like Venmo, PYUSD supports external ERC-20 transfers. Its market footprint, however, remains modest, representing less than 0.5% of the stablecoin market. Despite limited market share compared to stalwarts like USDT and USDC, PayPal considers PYUSD a pivotal element of its stablecoin strategy, aiming to enable over 20 million small businesses to settle payments in PYUSD by 2025. This initiative seeks to bypass traditional card networks, establishing native stablecoin-based payment channels.
The SEC’s decision arrives amidst ongoing regulatory scrutiny of PayPal in other areas. An investigation by the Consumer Financial Protection Bureau concerning PayPal Credit's backup funding persists, alongside a separate antitrust review by Germany’s Federal Cartel Office. Nevertheless, these inquiries are unrelated to PYUSD or its cryptocurrency functionalities. In a broader context, the SEC’s recent clarifications suggest that certain fiat-backed, non-yielding stablecoins may not fit the legal definition of a security. However, this guidance is limited and doesn’t cover all stablecoin varieties, reinforcing the necessity for congressional action to ultimately define regulatory oversight for stablecoins.
