Stablecoin issuer Paxos recently released its first transparency report for PayPal USD (PYUSD), an Ethereum-based stablecoin. This report provides valuable insights into the assets backing the token, offering investors and users greater confidence in its value proposition.
According to the transparency report, the assets held in custody for PayPal USD “meet or exceed the token balance.” As of August 31, 2023, the total tokens outstanding amounted to $44.4 million. The report also states that the total notional position value reached $44.5 million.
The lion’s share of PYUSD assets is backed by U.S. Treasury reverse repurchase agreements held by Paxos. This arrangement ensures that the stablecoin remains fully collateralized. The transparency report reveals that nearly 97% of the total assets in PYUSD custody, which is approximately $43 million, are held in Treasury reverse repurchase agreements.
A reverse repurchase agreement is a contractual agreement between two parties, involving the sale of securities at an agreed price. In this case, Paxos sells securities to counterparties while committing to repurchase them. These repurchase agreements have overnight maturity and are overcollateralized with U.S. Treasuries.
Paxos emphasizes that all trades are overcollateralized, mitigating the risk of default and loss. In the event of a default by the counterparty, Paxos has the ability to liquidate the U.S. Treasury collateral to protect itself. This proactive approach ensures the stability and security of the PayPal USD stablecoin.
Holdings of Fiat Currency
Aside from the Treasury reverse repurchase agreements, Paxos also holds $1,500,146 of fiat currency in insured depository institutions. These cash deposits serve as an additional safeguard for PYUSD holders. The company provides a link to the IntraFi network, which lists the insured depository institutions where funds may be placed.
Insurance Coverage and Bank Insolvency
Paxos clarifies that it does not currently have any active private uninsured deposit insurance policies. It’s worth noting that not all deposits are covered by the Federal Deposit Insurance Corporation (FDIC) or private insurance. In the event of a bank insolvency, Paxos may still face potential losses. Users should be aware of this risk, although the company strives to minimize it through its rigorous asset backing.
The release of Paxos’ transparency report comes shortly after the launch of PayPal USD in collaboration with PayPal. By the end of August, 90% of the stablecoin’s supply was held in Paxos wallets, with the remaining 7% distributed across exchanges such as Kraken, Gate.io, and Crypto.com.
On September 12, BitPay, a prominent cryptocurrency payment firm, announced the adoption of PYUSD as a payment option on its platform. This move further strengthens the use cases and utility of the stablecoin, bringing it to a broader user base within the crypto ecosystem.
Paxos’ transparency report provides valuable insights into the backing and risk management strategies employed for PayPal USD. With significant holdings in U.S. Treasury reverse repurchase agreements and cash deposits, coupled with overcollateralization, the stablecoin offers a compelling value proposition. As its adoption grows and more partnerships are formed, PayPal USD has the potential to become a prominent player in the stablecoin market.
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