PayPal’s Stablecoin Plans Come Under Fire. And Here is Why.

The news that a financial technology company may stop generating the stablecoin of the world’s largest crypto exchange facing regulatory investigation raises concerns about PayPal’s entry into cryptocurrencies.

Paxos Trust said on Monday that it is terminating its agreement with Binance and would no longer issue the exchange’s stablecoin Binance USD.

Paxos was forced to stop providing the stablecoin by the New York State Department of Financial Services. It also followed an anonymous Wall Street Journal story claiming that the Securities and Exchange Commission informed Paxos that it intends to sue for breaking investor protection rules and that Binance USD is an unregistered security.

The SEC declined to comment, and Paxos did not reply to a request about the Journal’s report.

Paxos collaborates with corporations like PayPal (PYPL) and Mastercard (MA). PayPal Ventures, which provided the option for clients to purchase and sell cryptocurrency in late 2020 through a collaboration with Paxos, also supports the fintech organization.

According to a corporate representative, PayPal is considering releasing a stablecoin. “If and when we seek to move forward, we will, of course, work closely with relevant regulators,” Amanda Miller said.

But there are concerns that heightened regulatory scrutiny could delay PayPal’s plans. Bloomberg reported late Friday, citing anonymous sources, that PayPal was suspending work on its stablecoin. PayPal had hoped to release its stablecoin in the coming weeks, but it will postpone it, according to the report.

As reported by Bloomberg, PayPal declined to comment on the delay and whether it would work with Paxos on the stablecoin.

Over the past year, regulators and lawmakers have increased their focus on cryptocurrencies after a series of business failures, including some allegations of fraud.

Stablecoins, tokens that are typically pegged to and backed by the US dollar, have come under scrutiny from regulators because they play a critical role in cryptocurrency markets as an entry point into the ecosystem and a key source of liquidity.