PayPal Reportedly Pauses Crypto Project Amid Regulatory Scrutiny Of Key Partner Paxos

PayPal has reportedly paused its stablecoin project after financial regulators tightened scrutiny on cryptocurrencies and the New York State Department of Financial Services started investigating the company's key project partner.

The online payments giant was initially planning to launch its stablecoin project "in the coming weeks," Bloomberg reported, citing a person with knowledge on the matter. The report, however, claimed that PayPal will instead delay the project's debut to better understand the changing regulations of stablecoins.

Amanda Miller, a spokesperson for PayPal, said in a statement that the company is "exploring a stablecoin" and noted that "if and when we seek to move forward, we will, of course, work closely with relevant regulators."

PayPal did not make any announcements about its stablecoin project, but rumors started making rounds when a code for a USD-backed PayPal Coin was uncovered in the company's official application code in January last year.

The latest information about PayPal's stablecoin project surfaced after news broke that stablecoin issuer and brokerage Paxos, which is its key partner in the project, was under investigation by the New York Department of Financial Services (NYDFS).

While the specifics of the investigation were unclear, an NYDFS spokesperson said "the department is in continuous contact with regulated entities to understand vulnerabilities and risks to consumers and the institutions themselves from crypto market volatility we are experiencing."

Paxos previously made headlines when reports claimed the U.S. Office of the Comptroller of the Currency (OCC) had asked the brokerage to withdraw its application for a full banking charter.

Paxos denied the rumors and said at the time that it was working "constructively" with the federal bank regulator.

"To clarify speculation: Paxos has not been asked to withdraw its application for a national trust bank charter from the OCC, nor has it been denied the charter. Paxos continues to work constructively with the OCC," the company tweeted last week.

While details about the launch of PayPal's stablecoin project are still unknown, the online payments giant has already introduced crypto features in 2020.

It started allowing users to invest in crypto assets like Bitcoin and Ethereum through its platform in October 2020.

Despite this, PayPal did not allow users to withdraw coins from the platform to an external wallet until June 2022. In mid-2022, the company started expanding the trading capabilities of its platform and raised limits.

By the end of 2022, PayPal held around $604 million in crypto — $291 million of Bitcoin, $250 million of Ethereum and around $69 million of Litecoin and Bitcoin Cash, an annual report filed to the U.S. Securities and Exchange Commission showed.