PayPal launched the PYUSD stablecoin on August 7, 2023, but imminently faced criticism around its control over user funds. However, I feel that it is nonetheless a step forward for PayPal’s users, like me, who would now receive faster settlements and with probably lesser transaction costs.
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The Controversy Around PYUSD
PayPal faced stark criticism over its PYUSD because in the smart contract of this stablecoin, there existed pieces of code which enabled PayPal to “freeze” and “erase” user’s funds.
We can see this in the snapshot of PYUSD smart contract below.
On line 110, we can see that there is a function that can freeze addressed. Line 112 has a function that can wipe out the balances of the user at will.
These two functions could enable the PYUSD smart contract deployer to just wipe out the user’s balance if they want to.
But would they do that without any justification? Chances are slim because it would drive everyone out of PayPal. Any sane person or company would never want that.
PayPal’s Compliance Obligations
Now, PayPal is completely able to do freezing and erasing funds with its current platform. The need to such activity arises from its needs for compliance in multiple jurisdictions.
There are several rule makers like local governments, supra-national bodies (UN) and several regional governments within a nation.
One such rule maker is the multinational body, Financial Action Task Force(FATF). It has 40 rules for anti money laundering (AML) and know your customer (KYC) rules. The body has even the power to sanction multiple countries and has sanctioned several governments too.
Recommendation 6 of FATF lists concerns implementation of sanctions against terrorism. To enforce this, a freezing of funds(line 110) is necessary. Further, once proved to be a terrorist, their funds would not be allowed to remain with them which makes the wipe out function(line 112) necessary.
Looking Towards the Brighter Side
On the positive side, PYUSD has been a boon for freelancers like me who earn from multiple sources. These freelancers can now earn a higher payment for the same work.
Thanks to blockchain technology, payments would now be less than $5, which was not the case earlier. For a payment of $265, I would get only $250.
Also, these payments will now be a lot faster. Earlier, it usually took around 2 business days to settle funds. With PYUSD, I hope it would not take more than 5-10 minutes.