SEC Ends 16-Month PayPal Stablecoin Inquiry, No Action Taken
2min read The U.S. Securities and Exchange Commission (SEC) has concluded its investigation into PayPal's dollar-backed stablecoin, PYUSD, without taking any enforcement action. This decision, disclosed in PayPal's Q1 2025 financials, marks the end of a 16-month inquiry that began with a subpoena issued in November 2023. The SEC's closure of the matter removes a potential legal overhang for both paypal and the issuer, signaling a measured regulatory posture toward at least some stablecoin frameworks.
The SEC's subpoena was broad, requesting documents related to PYUSD activity, but it did not allege specific violations. This decision aligns with other regulatory moves since the departure of former SEC Chairman Gary Gensler, who often claimed that many tokens constitute securities. The exemption of PYUSD from further investigation could bolster legislative momentum behind a bipartisan Senate bill proposing a separate regulatory path for payment stablecoins. The bill would formalize licensing frameworks for issuers at either the Federal Reserve or state level, mandate 1:1 reserve backing, and require monthly disclosures.
PYUSD was launched in August 2023 as the first payments-branded stablecoin from a prominent U.S. fintech. Issuance is backed entirely by cash and short-term U.S. Treasury bills, with monthly attestations published. PayPal has integrated the asset into its own platforms, including Venmo, and enabled external ERC-20 transfers. Despite a relatively modest market share compared to incumbents, PayPal has framed PYUSD as central to its broader stablecoin strategy. The company’s roadmap includes offering over 20 million small businesses the ability to settle payments in PYUSD throughout 2025. The move positions PayPal to bypass traditional card networks and build out native stablecoin-based payment rails.
PayPal continues to acknowledge custodial and legal uncertainties tied to digital asset storage. The firm notes in its risk disclosures that custodial crypto-assets may not receive traditional bankruptcy protections. It warns that user funds may be treated as part of the custodian’s estate in an insolvency event. While these caveats remain unresolved, the absence of SEC enforcement in the PYUSD case provides some clarity in an otherwise fragmented regulatory environment.
The SEC’s decision also arrives as other regulatory investigations into PayPal remain open. The Consumer Financial Protection Bureau issued a Civil Investigative Demand regarding backup funding of PayPal Credit in August 2024, and Germany’s Federal Cartel Office continues a separate antitrust review. However, neither of those matters pertains to PYUSD or its crypto-related functions. The SEC staff’s recent April statement clarified that a specific subset of USD-backed, fully reserved, non-yield-bearing stablecoins (“Covered Stablecoins”) is not considered a security under the federal securities laws, as they do not meet the criteria set out in the Howey or Reves tests. However, this guidance is limited in scope and does not address all types of stablecoins, nor does it constitute formal rulemaking or a Commission-wide decision. Although there is still no definitive ruling on the status of stablecoins under securities law, the SEC’s retreat in this case bolsters rhetoric that enforcement may not be the mechanism through which rules for dollar-backed tokens are ultimately shaped. Instead, the contours of stablecoin oversight may emerge from Congress.
