Stablecoin issuer Paxos has recently released its first transparency report for PayPal USD (PYUSD), an Ethereum-based stablecoin. The report confirms that the coin is fully backed by assets, providing reassurance to token holders. The total assets held in PYUSD custody are equal to, or greater than, the token balance, with a current value of $44.4 million as of August 31, 2023. Additionally, the total notional position value stands at $44.5 million.
According to the transparency report, a significant portion of PYUSD assets, nearly 97%, are backed by U.S. Treasury reverse repurchase agreements held in custody by Paxos. This translates to approximately $43 million in assets held in these agreements. A reverse repurchase agreement involves one party selling securities to another at a predetermined price, with a commitment. Paxos ensures that these agreements are overcollateralized with U.S. Treasuries to minimize risk. In the event of a default by the counterparty, Paxos has the ability to liquidate the U.S. Treasury collateral to recover any losses.
As of August 31, Paxos also held $1,500,146 of fiat currency as cash deposits at insured depository institutions. The company has provided a link to the IntraFi network, which lists the insured depository institutions used by Paxos. It is important to note that not all deposits are covered by the FDIC or private insurance, and Paxos could still incur losses in the event of a bank insolvency. However, the firm believes that the overcollateralized nature of its trades significantly reduces the risk of loss.
Paxos and PayPal introduced PYUSD on August 7, marking an important milestone for the stablecoin. As of late August, 90% of PayPal USD was held in Paxos wallets, while approximately 7% was distributed among popular exchanges such as Kraken, Gate.io, and Crypto.com. The widespread adoption of PYUSD has been further bolstered by BitPay, a major cryptocurrency payment firm, which recently added PYUSD as a payment option on its platform alongside other USD-pegged stablecoins like USD Coin (USDC).
The transparency report from Paxos provides valuable insight into the asset backing of PayPal USD stablecoin, giving confidence to token holders. With a substantial amount of assets held in U.S. Treasury reverse repurchase agreements and a risk management approach that prioritizes overcollateralization, Paxos demonstrates its commitment to maintaining the stability and integrity of the stablecoin market. As adoption of PYUSD continues to grow, the integration of PYUSD into platforms such as BitPay further solidifies its position as a reliable and widely accepted stablecoin option in the cryptocurrency industry.