Image source: Kraken Exchange blog

In an era where transparency is paramount, Paxos, the stablecoin issuer, has released its first-ever report on the Ethereum-based stablecoin, PayPal PYUSD stablecoin (PYUSD). The report provides a comprehensive look into the backing of the coin, ensuring its stability and trustworthiness in the volatile crypto market.

Total Tokens and Asset Backing: A Snapshot

As of August 31, 2023, PYUSD’s total outstanding tokens were valued at $44.4 million. Interestingly, the total notional position value was a tad higher, pegged at $44.5 million. 

This data underscores that the assets held in PayPal USD custody are either equivalent to or exceed the token balance, a crucial factor for any stablecoin’s credibility.

U.S. Treasury Reverse Repurchase Agreements: The Backbone of PayPal PYUSD stablecoin

The report reveals that the primary backing for PYUSD’s assets comes from the U.S. Treasury reverse repurchase agreements. These agreements, held securely in custody by Paxos, are primarily for the benefit of PYUSD holders. A significant $43 million, which is nearly 97% of the total assets in PYUSD custody, is held in these Treasury reverse repurchase agreements.

PayPal PYUSD Stablecoin is 100% backed information image

Paxos’ PYUSD transparency report. Source: Paxos

Decoding Reverse Repurchase Agreements

For those new to the concept, a reverse repurchase agreement is essentially a contractual deal between two parties. One party commits to selling securities to the other at a set price, with a commitment to buy back. 

Paxos provided further insights into their strategy, stating, “Our repurchase agreements have overnight maturity with esteemed financial institutions and are overcollateralized with the U.S. Treasuries.” This means that if there’s a default by the counterparty, Paxos has the right to liquidate the U.S. Treasury collateral to recover its dues. Given that all trades are overcollateralized, the risk of loss is deemed negligible.

Paxos’ Cash Deposits: An Additional Layer of Trust

Image source: Paxos

Beyond the Treasury reverse repurchase agreements, Paxos also revealed that as of August 31, they held a sum exceeding $1.5 million in fiat currency at insured depository institutions, commonly referred to as cash deposits. However, a word of caution was added: not all deposits benefit from FDIC or private insurance coverage. This implies a latent risk of losses if a bank faces insolvency.

The growth and acceptance of the PayPal PYUSD stablecoin

The collaboration between Paxos and PayPal bore fruit with the launch of PYUSD on August 7. By the close of August, a whopping 90% of PayPal USD was securely held in Paxos’ wallets. In contrast, about 7% was distributed across various crypto exchanges, including but not limited to Kraken, Gate.io, and Crypto.com. 

Adding another feather to its cap, BitPay, a renowned cryptocurrency payment firm, announced the integration of PYUSD as a payment option on September 12. This move further solidified PYUSD’s position in the market, especially when considering that BitPay already supports other USD-pegged stablecoins like USD Coin (USDC).

As the stablecoin ecosystem continues to evolve, such transparency initiatives will likely become the norm rather than the exception, setting a new standard for credibility and trust and as a way to mitigate stablecoin imitators and fraudsters, like PYUSD had experienced at the start.

The release of the transparency report by Paxos is a significant milestone in establishing PYUSD as a reliable stablecoin. With the majority of its assets securely backed by U.S. Treasury reverse repurchase agreements and a growing market presence, PYUSD is well-positioned to become a key player in the stablecoin market.