The U.S. Securities and Exchange Commission has formally ended its inquiry into PayPal’s dollar-backed stablecoin, PYUSD, opting not to pursue enforcement action, according to the company’s latest 10-Q filing.
The decision, disclosed in Q1 2025 financials, follows a November 2023 subpoena that had raised industry speculation over whether PYUSD might be treated as an unregistered security.
The closure of the matter removes a potential legal overhang for both PayPal and issuer Paxos, signaling a measured regulatory posture toward at least some stablecoin frameworks.
The scope of the SEC’s subpoena was broad, requesting documents relating to PYUSD activity, but it stopped short of alleging specific violations. The agency’s decision aligns with other moves since Gary Gensler’s departure, who often claimed that many tokens constitute securities.
PYUSD’s exemption from further investigation could bolster legislative momentum behind the GENIUS Act, a bipartisan Senate bill proposing a separate regulatory path for payment stablecoins.
Introduced as S. 919, 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.
PayPal PYUSD
Paxos, a NYDFS-regulated trust company, launched PYUSD 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. PYUSD’s circulating supply was approximately $879 million, accounting for under 0.5% of the $241 billion global stablecoin market.
Coinbase recently waived trading fees for PYUSD and added one-click redemption to USD, which may improve liquidity and reduce friction for users accessing or exiting the token.
Despite a relatively modest market share compared to incumbents like USDT and USDC, 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.
Stablecoin regulation in the US
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.
