Payments giant PayPal Holdings Inc. disclosed today that it has received a subpoena from the U.S. Securities and Exchange Commission related to its U.S. dollar stablecoin, PYUSD.

PayPal revealed that it received the subpoena from the enforcement division of the SEC in its Nov. 2 financial report for its third quarter and that it’s related to the August launch of the cryptocurrency token.

A stablecoin is a type of cryptocurrency that is “pegged” to another currency so a single token can be exchanged one-to-one. In the case of PayPal’s currency, called PayPal USD or PYUSD, each token can be exchanged for $1 USD. This makes it useful for retail or trade because it does not experience trade volatility, unlikely other cryptocurrencies such as bitcoin or Ethereum.

In the financial report, PayPal stated that the subpoena sought the production of documents related to the stablecoin and that the company is “cooperating with the SEC in connection with this request.”

PayPal’s stablecoin is issued by Paxos Trust Co. LLC and is 100% backed by U.S. dollar deposits and short-term U.S. Treasuries and similar cash equivalents, according to the company. PayPal had previously partnered with Paxos to offer cryptocurrency services to customers, which permitted them to buy, hold and sell crypto including bitcoin, Ethereum, Bitcoin Cash and other currencies on the platform.

The company initially sought to develop a stablecoin offering in early 2022 after it confirmed it was looking to develop and launch such a currency product. At the time, a developer had discovered references to something called “PayPal Coin” within the company’s iOS app.

PayPal has worked over the past years to integrate cryptocurrencies rapidly into its apps and properties. The company announced the upcoming addition of PYUSD into the Venmo mobile payment service, which will allow users to send the stablecoin to their friends and family. On Oct. 31, it received approval from the United Kingdom Financial Conduct Authority to expand its crypto services into the country.

The SEC has cast a wide net of enforcement actions against various companies involved in the cryptocurrency business over the past few months, centered around issuing tokens that the regulator alleged were unregistered securities.

In June, the SEC sued Coinbase Global Inc., a major cryptocurrency exchange in the U.S., alleging that the company was operating an unregistered securities exchange and broker. The news followed in the wake of the SEC filing suit against crypto exchange giant Binance Holdings Ltd. and its founding Chief Executive Changpeng Zhao with 13 violations of securities laws. Binance is the largest cryptocurrency exchange by volume.

SEC Chair Gary Gensler has famously claimed that all cryptocurrencies are securities and therefore must be registered properly with the regulator.

Photo: PayPal