11 ms·

There are now two types of PayPal dollars, and one is better than the other

152 points by imartin2k 3y ago

yieldcrv 3y ago
> It's the PayPal dollars hosted on crypto databases that are the safer of the two, if not along every dimension, at least in terms of the degree to which customers are protected by: 1) the quality of underlying assets; 2) their seniority (or ranking relative to other creditors); and 3) transparency. I like the pressure that crypto infrastructure builds within. The general discrimination against crypto on the regulatory front creates these outcomes that are better than the other custodial system, and ironically more in line with bitcoin’s original anti-leverage ethos. What’s missing are consumers that are discerning because there are a lot of ineligible and poorly managed crypto offerings. So the regulators are helping, the criticism against crypto is helping, but the organizations offering well designed and well managed products are not what people gravitate towards. Paypal USD’s design is okay, in comparison to their fiat offering, but only due to regulators creating more difficult requirements for crypto. It is anti-fragility in action and something crypto enthusiasts have always appreciated about crypto: how it gets more resilient under pressure and can adapt. Paypal USD as a stablecoin is unremarkable and has the same arbitrary fund freeze capabilities that Paypal always had, but it’s fungibility and addition to the stablecoin space is an improvement.
- Animats 3y ago
  Only because New York State makes them back their stablecoin with good assets. The real question is, if you have PayPal stablecoins, do you have the keys, or does PayPal? Can PayPal take your crypto money away or freeze it, as they routinely do with Paypal-controlled accounts? That's what really matters.
  - rvnx 3y ago
    On their website: "Although Paxos has the ability and the right to freeze all USD Stablecoins tokens, including PYUSD, Paxos would only deploy such ability in very limited circumstances. Paxos will report such incidents to law enforcement and/or regulators in a timeline manner, and will freeze certain PYUSD" So at least it's honest.
    - dotancohen 3y ago
      > Although Paxos has the ability and the right to freeze all USD Stablecoins tokens Having the technical ability does not actual grant to them the right, I believe.
  - repomies69 3y ago
    They can freeze it, but on the blockchain. As far as I understand, people can observe how much freezing happens overall, from the blockchain. This is superior feature IMO. There are tons of "paypal froze my money" all over the internet, but it is next to impossible to verify how much that is actually happening. With blockchain-based stablecoins we should know precisely the percentages of money being freezed.
    - Semaphor 3y ago
      Would they need to freeze it on the chain? As they hold the keys, they are acting as custodian and can do their own freezing.
      - earnesti 3y ago
        I kind of assumed that you can self-custody paypalusd. Otherwise, what would be the point? Of course self-custody is a bit misleading as they are any way IOU notes.
      - yieldcrv 3y ago
        You can withdraw Paypal USD and self custody it onchain, and use it with the same flexibility as any ERC20 token. But this token does have code to freeze your balance of itself, an action controllable by the token contract administrators, which is Paypal. this is seen in other similarly structured stablecoins. but the fungibility of being an erc20 token means offloading it is very easy too, there would therefore be no limitations on transfer amounts, no delay in having liquidity based on the time of day or day of the week. No need to rely on Paypal’s interest in redeeming the token for cash again, as you could just swap them onchain for something else more liquid or more speculative the instant you wanted.
        Semaphor 3y ago
        Interesting, thank you
  - yieldcrv 3y ago
    Thats exactly what I wrote. A parallel stricter regulatory regime makes it better than the incumbent financial regulatory regime. The irony here is that NYDFS made this regime 10 years ago when there were only small players in crypto, and it was intended to freeze them out of operating, with high requirements. Now, those same actors are big players and additional big players are still entering. Yes Paypal can freeze PaypalUSD on an address level.
ghoshbishakh 3y ago
No
- iLoveOncall 3y ago
  Oh there is definitely one that's better than the other, it's just not the one that the author claims.
  - quickthrower2 3y ago
    It is the third type of dollar (the one you get when you withdraw)
Traubenfuchs 3y ago
...why would you ever want to keep money on PayPal of all platforms, instead of moving it to your bank account as quickly as possible?
- deleted 3y ago
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- cowsandmilk 3y ago
  The $36 billion includes cash held on Venmo, which I know a ton of people who have cash flowing back and forth between friends all the time.
deleted 3y ago
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morjom 3y ago
What are the alternatives to PayPal?
- GrumpyNl 3y ago
  I would like to know that to, lots of my payments go through paypal.
- deleted 3y ago
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- Grimburger 3y ago
  Wise is the best from where I stand as someone taking payments from various jurisdictions. There's also revolut and payoneer but they have a few red flags looming over them that make me hesitant.
  - jtvjan 3y ago
    What red flags, exactly?
    - blitzar 3y ago
      Revolut (if it was a real bank would be the 5th/6th biggest in the UK) has failed dozens of times to get a UK banking licence, it is expected that they will be rejected again on their current application. UK ministers (motivated by donations and board seats from Revolut?) continue to put pressure on the regulator to grant the liscence. Revoluts auditors BDO stated that they were unable to get a complete picture of some of Revolut’s revenue and as a result it, or other financial balances, could be “materially misstated”. Former holders of UK banking licences include SVB.
      - alexchamberlain 3y ago
        It should be noted that, if I understand the situation correctly, the "SVB" with a UK banking licence was a subsidiary, and it was solvent when sold because the parent company went under.
smadge 3y ago
PayPal is not a bank. It does not offer checking accounts. Do not put money in PayPal.
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bsder 3y ago
It doesn't matter because only an idiot would let PayPal hold any amount of their funds. PayPal will arbitrarily freeze your funds, suspend your account, and anything else they can get away with with absolutely no quick recourse on your end. Use PayPal as a payment system and immediately yank the funds out. Anything else is ferociously stupid.
- deleted 3y ago
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- archi42 3y ago
  I think for a normal customer that's true. IIRC it's mostly commerical users who don't always seem to have immediate access to funds?
  - concerned_user 3y ago
    If you accept payments via Paypal you can't withdraw money for 21 days, at least that is the case in the company I work for. Explanation is that in case a dispute will be issued so that they can refund, so my guess is large proportion of those funds is such payments being held.
    - archi42 3y ago
      Ah, thanks, that's what I had in mind :) So while the original advise holds, commercial users are locked out of three weeks of payments of they're frozen for random bs.
      - concerned_user 3y ago
        I think it depends on the country your business is in (i.e. local laws and regulations) and what is your transaction volume is through Paypal, if you have large transaction volume I am pretty sure you will get better conditions. Our company has very low volume through Paypal, we only provide it as a convenience and we had to limit payment amount due to fraud we had in the past, so these are likely the worst conditions you can possibly get.
_hypx 3y ago
Take this as a sign that you should delete your Paypal account right away.
- deleted 3y ago
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- quickthrower2 3y ago
  It is a sign you should not keep money there, but the bigger risk always was the dreaded account freeze.
jurynulifcation 3y ago
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verdverm 3y ago
Talk about late to the party. Is this sunk cost fallacy at work or are they actually seeing demand for this?
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anymouse123456 3y ago
"Which type of PayPal dollar is safer for the public to use?" The answer is neither. PayPal will happily seize both on a whim and without recourse. Do not ever leave money you care about in Paypal.
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- earnesti 3y ago
  > PayPal will happily seize both on a whim and without recourse. It is likely that they will way less likely freeze the funds that are stored on the blockchain, as everyone will see it happening real time and the general public can also see how much there are frozen coins at any given time from the total circulation. Paypal has only little problems freezing their regular USD accounts. Yes, people will complain online, but so what? Regular Joe still will assume that it is just some isolated cases and won't be happening to me. No one outside paypal knows how much freezing is happening, and likely inside paypal as well it is not well known information. Meanwhile, the more they freeze the more they have funds for their own bottom line, so incentives are not very well aligned. I have a gut feeling that this might be "blockchain fixes it" moment. > Do not ever leave money you care about in Paypal. Yes, I agree. However paypal is big incumbetent player on the payment market and these products will likely be popular, so it makes a lot of sense to analyze them in detail.
  - __alexs 3y ago
    Where can you see the frozen funds on the blockchain for PayPal USD either inside of a PayPal account or in an Ethereum wallet?
    - mattdesl 3y ago
      The PYUSD contract includes an `isFrozen` method that returns true if the address is frozen[1]. Since all of the transfers and activity on this coin happens on Ethereum blockchain, all of it is transparent and trackable by any party. It's a nice feature you get when building payment infrastructure on a public blockchain, compared to PayPal's traditional black box systems. [1] https://etherscan.io/token/0x6c3ea9036406852006290770bedfcaba0e23a0e8#readProxyContract#F15 https://etherscan.io/token/0x6c3ea9036406852006290770bedfcab...
noduerme 3y ago
Wow, so great, an operator holding billions of individuals' money as a "money transmitter" without any FDIC insurance now is allowed to print their own currency. Hey friends, try starting a money transmitting business or printing your own money, and see how long it takes to get arrested if you don't have both massive investment and friends in powerful places. PayPal doesn't deserve to hold this special, seemingly untouchable perch in our economy. If we want the wild west, then let everyone else open up the same business. Otherwise, regulate them like a bank. I hope the DOJ goes after them next.
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- trompetenaccoun 3y ago
  They're not 'now' allowed to do this, they've always been allowed to in the US. Others such as Singapore and the EU (with MiCA) have by now introduced regulation specifically for stablecoins but US lawmakers have so far failed to do so. >printing your own money They're not printing money though. They do the same they've done prior, only now with more transparency. Most HN users have probably interacted with Paypal at some point in their lives, but how many understand what sort of "dollars" they sent or received? Because it's certainly not legal tender. Neither are the digital dollars in your bank account. They're private book money. In the case of banks we outright know most of it isn't even backed by real dollars, thanks to fractional reserve banking. This is a very real concern when you have more money in the bank than the insured amount. And as for Paypal who knows what they're backed by. Holding virtual funds backed by 100% US treasuries is a lot safer than backed by 'trust me bro'.
srmarm 3y ago
Bit of an odd way to put it, like saying there are X amount of HSBC dollars because they offer X different financial products. In this case PayPal's core product seems to be the same as always, they've also added a stablecoin product which you can make a conscious decision to buy. Similarly you can move your money into their savings account which offers additional guarantees. Presumably in both cases they'd prefer funds are kept as a 'standard' PayPal balance that they can invest to make more profit but if you're going to move your funds out of PayPal why not offer these other options. The author seems surprised that different financial products offer different levels of protection but different levels of risk Vs reward are what the whole financial world is about. So long as consumers are made aware that's fine.
__alexs 3y ago
[flagged]
- sukhavati 3y ago
  care to elaborate how is Tether a scam? is it because they earn the yield difference on user reserves while giving nothing to users? if that's so, probably due to how US law views securities. other than that, it appears as though users get exactly what they want from tether, which is: dollars
  - __alexs 3y ago
    Scam: A thing where someone says you'll get one thing, but you instead of you get something (or nothing) of lower value. Tether: Claim your USDT is backed by reserves. Fined for making misleading and untrue statements about their reserves. Yeah it's a scam.
rvz 3y ago
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dr_faustus 3y ago
Well the argument completely hinges on the assumption, that this Paxos outfit is not the same kind of shit show practically all the other crypto exchanges/issuers/brokers/funds are. Since the majority of major crypto companies have to be shown to be either incompetent or fraudulent, I for one would not bet on that. Since there is almost no money to be made with the "stablecoin" business model (at least compared to the profits/illicit gains of other crypto business models), the probability that something shady is going on is unfortunately quite high.
- pavlov 3y ago
  Stablecoins seem like the stereotypical ZIRP (zero interest rate phenomenon). When you couldn’t get a return on deposits (or safe government debt) anyway, it didn’t seem completely crazy to park your dollars with a company that doesn’t pay interest either, but at least lets you do highly leveraged trading against hapless crypto retail investors around the world. Now that the crypto retail boom is over and money has a price again, the notion of sending your dollars to a one-horse-show outfit like Tether or Paxos is much less appealing. They can vanish overnight and you don’t even have the $250k federal insurance like on US bank accounts.
  - delabay 3y ago
    Stablecoin operators are making money hand over fist in the post-ZIRP era. Real, actual revenue. If crypto has demonstrated clear PMF for anything, it's that the world loves stablecoins denominated in dollars.
    - pavlov 3y ago
      You have to ask, who are the people who love this product? Sure, if you make moving dollars easy, there are people who will use it. But is it an investment product at all? Here’s an example of how Tether gets used in the real world: “I’d been hearing rumors about illicit uses of Tether—I’d seen court documents containing intercepted messages from a Russian money launderer promoting it to his clients, for one thing—but pig butchering was the most concrete example I found. People around the world really were losing huge sums of money to the con. A project finance lawyer in Boston with terminal cancer handed over $2.5 million. A divorced mother of three in St. Louis was defrauded of $5 million. And the victims I spoke to all told me they’d been told to use Tether, the same coin Vicky suggested to me. Rich Sanders, the lead investigator at CipherBlade, a crypto-tracing firm, said that at least $10 billion had been lost to crypto romance scams.” https://www.bloomberg.com/news/features/2023-08-17/my-crypto-hell-journey-started-with-a-wrong-number-scam-text https://www.bloomberg.com/news/features/2023-08-17/my-crypto...
rkho 3y ago
It turns out that PayPal's stablecoin contract allows them to freeze holders from transacting, amongst other things: https://twitter.com/0xCygaar/status/1688592430315036672 https://twitter.com/0xCygaar/status/1688592430315036672 The USDC contract also allows for the freezing of addresses.
- mattdesl 3y ago
  This is and probably will always be the case for any centralized stablecoin. Unlike PayPal's traditional "black box" dollars, freezing and burning PYUSD are transparent actions broadcast to the network—it can be publicly analyzed and tracked in realtime.
- ryanschaefer 3y ago
  These are all super reasonable things though…? (with the caveat you are explicitly dealing with a centralized vendor) 1. Why does the version matter? It all gets compiled down to bytecode upon deployment and maybe the developers chose this version out of familiarity. 2. See the recent cash app glitch for why you’d want to be able to stop everyone transferring if you had a bug. This gives me more confidence than if it didn’t exist like some other crypto projects which get fully drained due to lack of this functionality. (Only for centralized protocols.) 3. Future proofing for AML / terror regulations. Be mad at your lawmakers if you don’t like this. See tornado cash for what happens if you have lack of controls. 4. This is something you absolutely have to have? Like, I don’t get why this is a point at all. How do you expect to credit users if not by increasing the total supply by the dollars they deposit?
  - vorpalhex 3y ago
    Paypal already freezes and seizes money from account holders, not for AML compliance but uh.. just because they can. This includes rules that they can fine you for "misinformation" (these rules have flip flopped a few times, not sure the current iteration). Bluntly, I won't do business with Paypal. They do bad business. I encourage you to also not do business with them. Using Eth as a backing token doesn't make it any better when they still have the option to just nuke your money with no controls.
PostOnce 3y ago
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- theherk 3y ago
  It doesn't even seem vague to me; just outright fraudulent.
- deleted 3y ago
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RandomLensman 3y ago
I was under the impression that money transmitters do not accepts deposits as such, but can provide other stored value services (but not a lawyer). So for me the whole premise of the discussion feels somewhat flawed.
- withinboredom 3y ago
  It largely depends on the state the user is in. In some states, it's basically a joke, and in others, you cannot touch the money or even accept interest on the money. It's a hodgepodge of shit. Basically. Source: I tried to figure out how to get a license in a bunch of states for a side-project and quickly realized I wasn't rich enough to do so.
hartator 3y ago
> PayPal's crypto dollars, which are managed by a third-party called Paxos, are 100% backed by the safest sorts of short-term collateral: U.S. Treasury-bills, reverse repo (backed by U.S. government securities), and commercial bank deposits. So, PayPal dollars are not dollars.
- cantSpellSober 3y ago
  that's why the sentence begins "PayPal's crypto dollars" instead of "Dollars"
nottorp 3y ago
[flagged]
- hunter2_ 3y ago
  Almost everything related to computer interaction is named with a metaphor, and crypto assets with "coin" in their names are as just as guilty. "Kohl's cash" isn't actual cash, etc.
  - PostOnce 3y ago
    Sure, disney dollars, monopoly money, etc, but "USD" already means something to everyone. i.e., citibank USD account would be a citibank account denominated in US Dollars as opposed to euros, not a citibank cryptocoin. Now i might have paypal euros, paypal usd, and paypal (crypto) usd? They're going to end up in government trouble over the name, I suspect.
    - hunter2_ 3y ago
      FWIW, there is also a cryptocurrency called "USD Coin" with a symbol of USDC, which I find roughly equivalent to PYUSD in terms of giving the impression of being actual USD.
rswail 3y ago
ISO20022 is going to kill all of these intermediaries. Systems like Australia's NPP and associated PayID/PayTo schemes, India's UPI, US FedNow etc replace all of the middle-men clipping the ticket with a close to direct account-to-account transfer, regulated by the appropriate reserve bank or equivalent. It doesn't work across currency borders (yet) but as these systems ramp up, with their substantially lowered costs and reduced friction, even the big guys like Visa/MC are going to be affected. And that's even before the central banks work on create their own digital coins (stable by default because backed by the fiat currency issuer).
- stewx 3y ago
  Do those protocols have dispute resolution mechanisms? If not, they are not directly comparable to PayPal.
  - pjmorris 3y ago
    Don't they have the dispute resolution mechanisms of the country implementing them, e.g. Australia, the US, India? Compared to that, PayPal seems like it'd have weaker dispute resolution mechanisms.
  - carlosjobim 3y ago
    No, they don't. If you get scammed on a purchase the bank will simply say "Tough luck!" and ask you to stop bothering them. Credit and Debit cards offer unparalleled consumer protection, that's why consumers give preference to business that accept cards – it takes away at least some of the worry when purchasing. What I don't understand are the people who - as customers - want to do away with credit and debit cards and replace them with these bank transactions that have no protections.
    - yomlica8 3y ago
      I thought debit cards weren't a lot better than bank transfers in this regard. Credit cards certainly are better though.
TradingPlaces 3y ago
“Our stablecoin is backed by dollars, so it is better than dollars.” Wut?
- malfist 3y ago
  It's even better than that. "Our third party provider of our stablecoin claims to be backed by dollars, so it is better than dollars"
- delabay 3y ago
  What is the "dollar" in your traditional PayPal balance backed by? The differentiation is written in plain English in the article.
- darkerside 3y ago
  Yes, it is better than the dollars Paypal holds for customers and then invests in higher risk securities.
neilv 3y ago
"PayPal USD" sounds like it would be misleading to many users in UIs.
- have_faith 3y ago
  Of course, obviously not accidental.
benreesman 3y ago
Come on folks, neither the author of the post nor any commenter I've seen here as of writing is arguing that we want any more tulip-scam crap or another FTX, which is probably the highest-profile and clearest-cut instance of financial fraud since LTCM or something: everyone is on the same page that we don't want any more pump-and-dump nonsense from crypto hucksters. But punishing good behavior is a terribly idea at all time and in all places: whatever combination of Paypal, and the regulators, and this Paxos outfit that have decided to raise the bar on Internet money compared to forms of Internet money that we've all taken for granted since forever? That's a good thing. It's very complicated in the details, but roughly, fractional reserve lending done by traditional banks and the money supply created thereby only works because it's in fact enmeshed in an a stupendous net of regulations, and guaranteed by things like the FDIC, and a bunch of stuff. Fractionally-backed, loosely-regulated Internet money is a very bad idea whether it's stored in MySQL or a blockchain. If Wall St. has show us anything since 1987 at least, it's that if we don't keep them on a very short leash, they're going to blow up the economy and stick John Q. Taxpayer with the bill as often as possible. This is true whether the database is DB2 or a ledger, which is one of the key points the author makes.
- toomuchtodo 3y ago
  This is an attempt to remain relevant with FedNow instant payments available, nothing more, nothing less. Looking at other jurisdictions with instant payment systems (UPI in India, PIX in Brazil), when these new systems are deployed, volume from for profit instant settlement value transfer systems rapidly diminishes. I like my banks and other adult financial institutions because I have recourse through federal regulators or FINRA if they cause me harm. I have no such protections with PayPal. The lesson is to have accounts at real banks that plug into real time payment systems, where your funds are FDIC insured or invested in government securities with no risk of failure.
  - benreesman 3y ago
    To me that theory sounds plausible, and even better, testable: we'll know soon if that's how it plays. The comparison made by author and which I'm trying to defend against a pitchfork mob, is between PyUSD and the PayPal "dollars" we've all known and loved since Elon Musk had a receding hairline. And I think the author makes a very convincing case that PyUSD is a strict improvement on the status quo. So maybe it can get better still, and maybe it will, and maybe FedNow will accomplish that. But better today is better today. I'm only arguing that going after a couple of companies and some regulators that have improved the status quo shouldn't get their teeth kicked in because of what database technology is used in the technical implementation.
SilverBirch 3y ago
I think the author is just vastly over-reaching by claiming the regulations around the crypto backed asset is "robust" vs the other being "haphazard". Financial regulations are largely created in response to situations rather than tabula rasa. The context is that crypto assets are a scam and people constantly got scammed with them, so NYDFS has stepped in and basically said "You know all those practical considerations we've made surrounding reasonable approaches to holding people's money? You get the benefit of none of them". It's much more economically efficient to allow institutions like Paypal do something a little bit smarter than just sit on the money, but there has to be a consideration of risk vs efficiency. What's happened with NYDFS is crypto companies have been so bad that they've basically lost all privileges that make the operation efficient. Paypal is not a bank. Customers who use it as a bank risk losing some or all of their money. That's absolutely true. But Paypal is pretty clear that money exists in it's system as part of a way of transfering it, not as the equivalent of sitting in a bank. All the major risks of money being in paypayl is that you get scammed sending the money to the wrong person etc.
- darkerside 3y ago
  I don't see the overreach. Paypal, as a party that primarily transfers money, is not being held to the same standards as a bank, but is effectively operating the same way in terms of the types of risk it is taking on with the money it holds. Calling that haphazard seems reasonable to me. No, they probably aren't holding as much of most any individual person's money as a traditional bank, but that doesn't mean the regulations aren't haphazard, it just means the downside risk to each individual is reduced. We now have stablecoins that are being forced to operate as a stablecoin should. When someone buys crypto that claim to be pegged to the dollar, there should be essentially zero risk of price movement. It's not the digital equivalent of a savings account, it's the digital equivalent of cash. I didn't expect to feel sanguine about this development when I opened the article, but as it turns out, I do.
- throw9away6 3y ago
  Somehow PayPal is not a bank while actually being a bank. I hate our shitty regulatory system
jliptzin 3y ago
None of this should matter anyway. No one should have any amount of money just sitting in your PayPal account. It should be 100% withdrawn immediately.
rafaelero 3y ago
Why would Paypal want to provide a crypto dollar when it won't be able to do fractional reserving and then extract the juicy yields?
- FabHK 3y ago
  Rates are high. Offering any dollar account, you can just collect 5% p.a. and pass none of it on to the consumer.
janandonly 3y ago
3 kinds of "dollars", actually: 1. the old school accounts we all know. 2. the PayPalUSD which, as this article explains, is saver and runs on the ETH blockchain. Moreover, it appears to be trading at 0.99 cents to the dollar. That is an arbitrage opportunity right there. 3. The saving account with 0.85 APY and a federal covering of $250000. > It would be illegal for PayPal to back its new crypto-based dollars with the assets listed above, yet for some reason it is fine if it backs its traditional dollars with them. > The second drawback of PayPal's regular dollars is that the assets underlying them don't really "belong" to customers in any strong sense of the word. They belong to PayPal. > To translate, the assets underlying your $1000 in PayPal USD cryptodollars are not PayPal's assets. Nor are they Paxos's. They are yours. No need to squabble with competing vultures for what's left. > But oddly, PayPal is under no legal obligation to extend these very sensible protections to all of its regular PayPal dollars. > the third type is insured by the government up to $250,000. PayPal Savings dollars also pay interest, whereas the first two don't, or are prohibited from doing so. PayPal offers this product in conjunction with a bank, Synchrony Bank, which means this third type of PayPal dollar conforms to an entirely different set or rules than the other two: Federal banking law.
gumby 3y ago
Isn't there a transaction cost of holding (well, of using) the stablecoins compared to holding the ordinary debt? That would make the crypto version significantly worse unless you thought there were a chance of paypal going under, in which case the better strategy is to switch to something else (obv not venmo!). The graph in the article seems to show that a dollar of the crypto is worth 50 basis points less than an actual dollar.
latchkey 3y ago
Old but still relevant: https://techcrunch.com/2010/10/26/wepay-ice-paypal/ https://techcrunch.com/2010/10/26/wepay-ice-paypal/
rtpg 3y ago
In Europe isn't PayPal a bank? Therefore there might be three kinds of PayPal dollars?

152 points by imartin2k 3y ago

> It's the PayPal dollars hosted on crypto databases that are the safer of the two, if not along every dimension, at least in terms of the degree to which customers are protected by: 1) the quality of underlying assets; 2) their seniority (or ranking relative to other creditors); and 3) transparency. I like the pressure that crypto infrastructure builds within. The general discrimination against crypto on the regulatory front creates these outcomes that are better than the other custodial system, and ironically more in line with bitcoin’s original anti-leverage ethos. What’s missing are consumers that are discerning because there are a lot of ineligible and poorly managed crypto offerings. So the regulators are helping, the criticism against crypto is helping, but the organizations offering well designed and well managed products are not what people gravitate towards. Paypal USD’s design is okay, in comparison to their fiat offering, but only due to regulators creating more difficult requirements for crypto. It is anti-fragility in action and something crypto enthusiasts have always appreciated about crypto: how it gets more resilient under pressure and can adapt. Paypal USD as a stablecoin is unremarkable and has the same arbitrary fund freeze capabilities that Paypal always had, but it’s fungibility and addition to the stablecoin space is an improvement.

Animats 3y ago
Only because New York State makes them back their stablecoin with good assets. The real question is, if you have PayPal stablecoins, do you have the keys, or does PayPal? Can PayPal take your crypto money away or freeze it, as they routinely do with Paypal-controlled accounts? That's what really matters.
- rvnx 3y ago
  On their website: "Although Paxos has the ability and the right to freeze all USD Stablecoins tokens, including PYUSD, Paxos would only deploy such ability in very limited circumstances. Paxos will report such incidents to law enforcement and/or regulators in a timeline manner, and will freeze certain PYUSD" So at least it's honest.
  - dotancohen 3y ago
    > Although Paxos has the ability and the right to freeze all USD Stablecoins tokens Having the technical ability does not actual grant to them the right, I believe.
- repomies69 3y ago
  They can freeze it, but on the blockchain. As far as I understand, people can observe how much freezing happens overall, from the blockchain. This is superior feature IMO. There are tons of "paypal froze my money" all over the internet, but it is next to impossible to verify how much that is actually happening. With blockchain-based stablecoins we should know precisely the percentages of money being freezed.
  - Semaphor 3y ago
    Would they need to freeze it on the chain? As they hold the keys, they are acting as custodian and can do their own freezing.
    - earnesti 3y ago
      I kind of assumed that you can self-custody paypalusd. Otherwise, what would be the point? Of course self-custody is a bit misleading as they are any way IOU notes.
    - yieldcrv 3y ago
      You can withdraw Paypal USD and self custody it onchain, and use it with the same flexibility as any ERC20 token. But this token does have code to freeze your balance of itself, an action controllable by the token contract administrators, which is Paypal. this is seen in other similarly structured stablecoins. but the fungibility of being an erc20 token means offloading it is very easy too, there would therefore be no limitations on transfer amounts, no delay in having liquidity based on the time of day or day of the week. No need to rely on Paypal’s interest in redeeming the token for cash again, as you could just swap them onchain for something else more liquid or more speculative the instant you wanted.
      - Semaphor 3y ago
        Interesting, thank you
- yieldcrv 3y ago
  Thats exactly what I wrote. A parallel stricter regulatory regime makes it better than the incumbent financial regulatory regime. The irony here is that NYDFS made this regime 10 years ago when there were only small players in crypto, and it was intended to freeze them out of operating, with high requirements. Now, those same actors are big players and additional big players are still entering. Yes Paypal can freeze PaypalUSD on an address level.

ghoshbishakh 3y ago

iLoveOncall 3y ago
Oh there is definitely one that's better than the other, it's just not the one that the author claims.
- quickthrower2 3y ago
  It is the third type of dollar (the one you get when you withdraw)

Traubenfuchs 3y ago

...why would you ever want to keep money on PayPal of all platforms, instead of moving it to your bank account as quickly as possible?

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cowsandmilk 3y ago
The $36 billion includes cash held on Venmo, which I know a ton of people who have cash flowing back and forth between friends all the time.

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morjom 3y ago

What are the alternatives to PayPal?

GrumpyNl 3y ago
I would like to know that to, lots of my payments go through paypal.
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Grimburger 3y ago
Wise is the best from where I stand as someone taking payments from various jurisdictions. There's also revolut and payoneer but they have a few red flags looming over them that make me hesitant.
- jtvjan 3y ago
  What red flags, exactly?
  - blitzar 3y ago
    Revolut (if it was a real bank would be the 5th/6th biggest in the UK) has failed dozens of times to get a UK banking licence, it is expected that they will be rejected again on their current application. UK ministers (motivated by donations and board seats from Revolut?) continue to put pressure on the regulator to grant the liscence. Revoluts auditors BDO stated that they were unable to get a complete picture of some of Revolut’s revenue and as a result it, or other financial balances, could be “materially misstated”. Former holders of UK banking licences include SVB.
    - alexchamberlain 3y ago
      It should be noted that, if I understand the situation correctly, the "SVB" with a UK banking licence was a subsidiary, and it was solvent when sold because the parent company went under.

smadge 3y ago

PayPal is not a bank. It does not offer checking accounts. Do not put money in PayPal.

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bsder 3y ago

It doesn't matter because only an idiot would let PayPal hold any amount of their funds. PayPal will arbitrarily freeze your funds, suspend your account, and anything else they can get away with with absolutely no quick recourse on your end. Use PayPal as a payment system and immediately yank the funds out. Anything else is ferociously stupid.

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archi42 3y ago
I think for a normal customer that's true. IIRC it's mostly commerical users who don't always seem to have immediate access to funds?
- concerned_user 3y ago
  If you accept payments via Paypal you can't withdraw money for 21 days, at least that is the case in the company I work for. Explanation is that in case a dispute will be issued so that they can refund, so my guess is large proportion of those funds is such payments being held.
  - archi42 3y ago
    Ah, thanks, that's what I had in mind :) So while the original advise holds, commercial users are locked out of three weeks of payments of they're frozen for random bs.
    - concerned_user 3y ago
      I think it depends on the country your business is in (i.e. local laws and regulations) and what is your transaction volume is through Paypal, if you have large transaction volume I am pretty sure you will get better conditions. Our company has very low volume through Paypal, we only provide it as a convenience and we had to limit payment amount due to fraud we had in the past, so these are likely the worst conditions you can possibly get.

_hypx 3y ago

Take this as a sign that you should delete your Paypal account right away.

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quickthrower2 3y ago
It is a sign you should not keep money there, but the bigger risk always was the dreaded account freeze.

jurynulifcation 3y ago

[flagged]

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verdverm 3y ago

Talk about late to the party. Is this sunk cost fallacy at work or are they actually seeing demand for this?

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anymouse123456 3y ago

"Which type of PayPal dollar is safer for the public to use?" The answer is neither. PayPal will happily seize both on a whim and without recourse. Do not ever leave money you care about in Paypal.

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earnesti 3y ago
> PayPal will happily seize both on a whim and without recourse. It is likely that they will way less likely freeze the funds that are stored on the blockchain, as everyone will see it happening real time and the general public can also see how much there are frozen coins at any given time from the total circulation. Paypal has only little problems freezing their regular USD accounts. Yes, people will complain online, but so what? Regular Joe still will assume that it is just some isolated cases and won't be happening to me. No one outside paypal knows how much freezing is happening, and likely inside paypal as well it is not well known information. Meanwhile, the more they freeze the more they have funds for their own bottom line, so incentives are not very well aligned. I have a gut feeling that this might be "blockchain fixes it" moment. > Do not ever leave money you care about in Paypal. Yes, I agree. However paypal is big incumbetent player on the payment market and these products will likely be popular, so it makes a lot of sense to analyze them in detail.
- __alexs 3y ago
  Where can you see the frozen funds on the blockchain for PayPal USD either inside of a PayPal account or in an Ethereum wallet?
  - mattdesl 3y ago
    The PYUSD contract includes an `isFrozen` method that returns true if the address is frozen[1]. Since all of the transfers and activity on this coin happens on Ethereum blockchain, all of it is transparent and trackable by any party. It's a nice feature you get when building payment infrastructure on a public blockchain, compared to PayPal's traditional black box systems. [1] https://etherscan.io/token/0x6c3ea9036406852006290770bedfcaba0e23a0e8#readProxyContract#F15 https://etherscan.io/token/0x6c3ea9036406852006290770bedfcab...

noduerme 3y ago

Wow, so great, an operator holding billions of individuals' money as a "money transmitter" without any FDIC insurance now is allowed to print their own currency. Hey friends, try starting a money transmitting business or printing your own money, and see how long it takes to get arrested if you don't have both massive investment and friends in powerful places. PayPal doesn't deserve to hold this special, seemingly untouchable perch in our economy. If we want the wild west, then let everyone else open up the same business. Otherwise, regulate them like a bank. I hope the DOJ goes after them next.

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trompetenaccoun 3y ago
They're not 'now' allowed to do this, they've always been allowed to in the US. Others such as Singapore and the EU (with MiCA) have by now introduced regulation specifically for stablecoins but US lawmakers have so far failed to do so. >printing your own money They're not printing money though. They do the same they've done prior, only now with more transparency. Most HN users have probably interacted with Paypal at some point in their lives, but how many understand what sort of "dollars" they sent or received? Because it's certainly not legal tender. Neither are the digital dollars in your bank account. They're private book money. In the case of banks we outright know most of it isn't even backed by real dollars, thanks to fractional reserve banking. This is a very real concern when you have more money in the bank than the insured amount. And as for Paypal who knows what they're backed by. Holding virtual funds backed by 100% US treasuries is a lot safer than backed by 'trust me bro'.

srmarm 3y ago

Bit of an odd way to put it, like saying there are X amount of HSBC dollars because they offer X different financial products. In this case PayPal's core product seems to be the same as always, they've also added a stablecoin product which you can make a conscious decision to buy. Similarly you can move your money into their savings account which offers additional guarantees. Presumably in both cases they'd prefer funds are kept as a 'standard' PayPal balance that they can invest to make more profit but if you're going to move your funds out of PayPal why not offer these other options. The author seems surprised that different financial products offer different levels of protection but different levels of risk Vs reward are what the whole financial world is about. So long as consumers are made aware that's fine.

__alexs 3y ago

[flagged]

sukhavati 3y ago
care to elaborate how is Tether a scam? is it because they earn the yield difference on user reserves while giving nothing to users? if that's so, probably due to how US law views securities. other than that, it appears as though users get exactly what they want from tether, which is: dollars
- __alexs 3y ago
  Scam: A thing where someone says you'll get one thing, but you instead of you get something (or nothing) of lower value. Tether: Claim your USDT is backed by reserves. Fined for making misleading and untrue statements about their reserves. Yeah it's a scam.

rvz 3y ago

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dr_faustus 3y ago

Well the argument completely hinges on the assumption, that this Paxos outfit is not the same kind of shit show practically all the other crypto exchanges/issuers/brokers/funds are. Since the majority of major crypto companies have to be shown to be either incompetent or fraudulent, I for one would not bet on that. Since there is almost no money to be made with the "stablecoin" business model (at least compared to the profits/illicit gains of other crypto business models), the probability that something shady is going on is unfortunately quite high.

pavlov 3y ago
Stablecoins seem like the stereotypical ZIRP (zero interest rate phenomenon). When you couldn’t get a return on deposits (or safe government debt) anyway, it didn’t seem completely crazy to park your dollars with a company that doesn’t pay interest either, but at least lets you do highly leveraged trading against hapless crypto retail investors around the world. Now that the crypto retail boom is over and money has a price again, the notion of sending your dollars to a one-horse-show outfit like Tether or Paxos is much less appealing. They can vanish overnight and you don’t even have the $250k federal insurance like on US bank accounts.
- delabay 3y ago
  Stablecoin operators are making money hand over fist in the post-ZIRP era. Real, actual revenue. If crypto has demonstrated clear PMF for anything, it's that the world loves stablecoins denominated in dollars.
  - pavlov 3y ago
    You have to ask, who are the people who love this product? Sure, if you make moving dollars easy, there are people who will use it. But is it an investment product at all? Here’s an example of how Tether gets used in the real world: “I’d been hearing rumors about illicit uses of Tether—I’d seen court documents containing intercepted messages from a Russian money launderer promoting it to his clients, for one thing—but pig butchering was the most concrete example I found. People around the world really were losing huge sums of money to the con. A project finance lawyer in Boston with terminal cancer handed over $2.5 million. A divorced mother of three in St. Louis was defrauded of $5 million. And the victims I spoke to all told me they’d been told to use Tether, the same coin Vicky suggested to me. Rich Sanders, the lead investigator at CipherBlade, a crypto-tracing firm, said that at least $10 billion had been lost to crypto romance scams.” https://www.bloomberg.com/news/features/2023-08-17/my-crypto-hell-journey-started-with-a-wrong-number-scam-text https://www.bloomberg.com/news/features/2023-08-17/my-crypto...

rkho 3y ago

It turns out that PayPal's stablecoin contract allows them to freeze holders from transacting, amongst other things: https://twitter.com/0xCygaar/status/1688592430315036672 https://twitter.com/0xCygaar/status/1688592430315036672 The USDC contract also allows for the freezing of addresses.

mattdesl 3y ago
This is and probably will always be the case for any centralized stablecoin. Unlike PayPal's traditional "black box" dollars, freezing and burning PYUSD are transparent actions broadcast to the network—it can be publicly analyzed and tracked in realtime.
ryanschaefer 3y ago
These are all super reasonable things though…? (with the caveat you are explicitly dealing with a centralized vendor) 1. Why does the version matter? It all gets compiled down to bytecode upon deployment and maybe the developers chose this version out of familiarity. 2. See the recent cash app glitch for why you’d want to be able to stop everyone transferring if you had a bug. This gives me more confidence than if it didn’t exist like some other crypto projects which get fully drained due to lack of this functionality. (Only for centralized protocols.) 3. Future proofing for AML / terror regulations. Be mad at your lawmakers if you don’t like this. See tornado cash for what happens if you have lack of controls. 4. This is something you absolutely have to have? Like, I don’t get why this is a point at all. How do you expect to credit users if not by increasing the total supply by the dollars they deposit?
- vorpalhex 3y ago
  Paypal already freezes and seizes money from account holders, not for AML compliance but uh.. just because they can. This includes rules that they can fine you for "misinformation" (these rules have flip flopped a few times, not sure the current iteration). Bluntly, I won't do business with Paypal. They do bad business. I encourage you to also not do business with them. Using Eth as a backing token doesn't make it any better when they still have the option to just nuke your money with no controls.

PostOnce 3y ago

[flagged]

theherk 3y ago
It doesn't even seem vague to me; just outright fraudulent.
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RandomLensman 3y ago

I was under the impression that money transmitters do not accepts deposits as such, but can provide other stored value services (but not a lawyer). So for me the whole premise of the discussion feels somewhat flawed.

withinboredom 3y ago
It largely depends on the state the user is in. In some states, it's basically a joke, and in others, you cannot touch the money or even accept interest on the money. It's a hodgepodge of shit. Basically. Source: I tried to figure out how to get a license in a bunch of states for a side-project and quickly realized I wasn't rich enough to do so.

hartator 3y ago

> PayPal's crypto dollars, which are managed by a third-party called Paxos, are 100% backed by the safest sorts of short-term collateral: U.S. Treasury-bills, reverse repo (backed by U.S. government securities), and commercial bank deposits. So, PayPal dollars are not dollars.

cantSpellSober 3y ago
that's why the sentence begins "PayPal's crypto dollars" instead of "Dollars"

nottorp 3y ago

[flagged]

hunter2_ 3y ago
Almost everything related to computer interaction is named with a metaphor, and crypto assets with "coin" in their names are as just as guilty. "Kohl's cash" isn't actual cash, etc.
- PostOnce 3y ago
  Sure, disney dollars, monopoly money, etc, but "USD" already means something to everyone. i.e., citibank USD account would be a citibank account denominated in US Dollars as opposed to euros, not a citibank cryptocoin. Now i might have paypal euros, paypal usd, and paypal (crypto) usd? They're going to end up in government trouble over the name, I suspect.
  - hunter2_ 3y ago
    FWIW, there is also a cryptocurrency called "USD Coin" with a symbol of USDC, which I find roughly equivalent to PYUSD in terms of giving the impression of being actual USD.

rswail 3y ago

ISO20022 is going to kill all of these intermediaries. Systems like Australia's NPP and associated PayID/PayTo schemes, India's UPI, US FedNow etc replace all of the middle-men clipping the ticket with a close to direct account-to-account transfer, regulated by the appropriate reserve bank or equivalent. It doesn't work across currency borders (yet) but as these systems ramp up, with their substantially lowered costs and reduced friction, even the big guys like Visa/MC are going to be affected. And that's even before the central banks work on create their own digital coins (stable by default because backed by the fiat currency issuer).

stewx 3y ago
Do those protocols have dispute resolution mechanisms? If not, they are not directly comparable to PayPal.
- pjmorris 3y ago
  Don't they have the dispute resolution mechanisms of the country implementing them, e.g. Australia, the US, India? Compared to that, PayPal seems like it'd have weaker dispute resolution mechanisms.
- carlosjobim 3y ago
  No, they don't. If you get scammed on a purchase the bank will simply say "Tough luck!" and ask you to stop bothering them. Credit and Debit cards offer unparalleled consumer protection, that's why consumers give preference to business that accept cards – it takes away at least some of the worry when purchasing. What I don't understand are the people who - as customers - want to do away with credit and debit cards and replace them with these bank transactions that have no protections.
  - yomlica8 3y ago
    I thought debit cards weren't a lot better than bank transfers in this regard. Credit cards certainly are better though.

TradingPlaces 3y ago

“Our stablecoin is backed by dollars, so it is better than dollars.” Wut?

malfist 3y ago
It's even better than that. "Our third party provider of our stablecoin claims to be backed by dollars, so it is better than dollars"
delabay 3y ago
What is the "dollar" in your traditional PayPal balance backed by? The differentiation is written in plain English in the article.
darkerside 3y ago
Yes, it is better than the dollars Paypal holds for customers and then invests in higher risk securities.

neilv 3y ago

"PayPal USD" sounds like it would be misleading to many users in UIs.

have_faith 3y ago
Of course, obviously not accidental.

benreesman 3y ago

Come on folks, neither the author of the post nor any commenter I've seen here as of writing is arguing that we want any more tulip-scam crap or another FTX, which is probably the highest-profile and clearest-cut instance of financial fraud since LTCM or something: everyone is on the same page that we don't want any more pump-and-dump nonsense from crypto hucksters. But punishing good behavior is a terribly idea at all time and in all places: whatever combination of Paypal, and the regulators, and this Paxos outfit that have decided to raise the bar on Internet money compared to forms of Internet money that we've all taken for granted since forever? That's a good thing. It's very complicated in the details, but roughly, fractional reserve lending done by traditional banks and the money supply created thereby only works because it's in fact enmeshed in an a stupendous net of regulations, and guaranteed by things like the FDIC, and a bunch of stuff. Fractionally-backed, loosely-regulated Internet money is a very bad idea whether it's stored in MySQL or a blockchain. If Wall St. has show us anything since 1987 at least, it's that if we don't keep them on a very short leash, they're going to blow up the economy and stick John Q. Taxpayer with the bill as often as possible. This is true whether the database is DB2 or a ledger, which is one of the key points the author makes.

toomuchtodo 3y ago
This is an attempt to remain relevant with FedNow instant payments available, nothing more, nothing less. Looking at other jurisdictions with instant payment systems (UPI in India, PIX in Brazil), when these new systems are deployed, volume from for profit instant settlement value transfer systems rapidly diminishes. I like my banks and other adult financial institutions because I have recourse through federal regulators or FINRA if they cause me harm. I have no such protections with PayPal. The lesson is to have accounts at real banks that plug into real time payment systems, where your funds are FDIC insured or invested in government securities with no risk of failure.
- benreesman 3y ago
  To me that theory sounds plausible, and even better, testable: we'll know soon if that's how it plays. The comparison made by author and which I'm trying to defend against a pitchfork mob, is between PyUSD and the PayPal "dollars" we've all known and loved since Elon Musk had a receding hairline. And I think the author makes a very convincing case that PyUSD is a strict improvement on the status quo. So maybe it can get better still, and maybe it will, and maybe FedNow will accomplish that. But better today is better today. I'm only arguing that going after a couple of companies and some regulators that have improved the status quo shouldn't get their teeth kicked in because of what database technology is used in the technical implementation.

SilverBirch 3y ago

I think the author is just vastly over-reaching by claiming the regulations around the crypto backed asset is "robust" vs the other being "haphazard". Financial regulations are largely created in response to situations rather than tabula rasa. The context is that crypto assets are a scam and people constantly got scammed with them, so NYDFS has stepped in and basically said "You know all those practical considerations we've made surrounding reasonable approaches to holding people's money? You get the benefit of none of them". It's much more economically efficient to allow institutions like Paypal do something a little bit smarter than just sit on the money, but there has to be a consideration of risk vs efficiency. What's happened with NYDFS is crypto companies have been so bad that they've basically lost all privileges that make the operation efficient. Paypal is not a bank. Customers who use it as a bank risk losing some or all of their money. That's absolutely true. But Paypal is pretty clear that money exists in it's system as part of a way of transfering it, not as the equivalent of sitting in a bank. All the major risks of money being in paypayl is that you get scammed sending the money to the wrong person etc.

darkerside 3y ago
I don't see the overreach. Paypal, as a party that primarily transfers money, is not being held to the same standards as a bank, but is effectively operating the same way in terms of the types of risk it is taking on with the money it holds. Calling that haphazard seems reasonable to me. No, they probably aren't holding as much of most any individual person's money as a traditional bank, but that doesn't mean the regulations aren't haphazard, it just means the downside risk to each individual is reduced. We now have stablecoins that are being forced to operate as a stablecoin should. When someone buys crypto that claim to be pegged to the dollar, there should be essentially zero risk of price movement. It's not the digital equivalent of a savings account, it's the digital equivalent of cash. I didn't expect to feel sanguine about this development when I opened the article, but as it turns out, I do.
throw9away6 3y ago
Somehow PayPal is not a bank while actually being a bank. I hate our shitty regulatory system

jliptzin 3y ago

None of this should matter anyway. No one should have any amount of money just sitting in your PayPal account. It should be 100% withdrawn immediately.

rafaelero 3y ago

Why would Paypal want to provide a crypto dollar when it won't be able to do fractional reserving and then extract the juicy yields?

FabHK 3y ago
Rates are high. Offering any dollar account, you can just collect 5% p.a. and pass none of it on to the consumer.

janandonly 3y ago

3 kinds of "dollars", actually: 1. the old school accounts we all know. 2. the PayPalUSD which, as this article explains, is saver and runs on the ETH blockchain. Moreover, it appears to be trading at 0.99 cents to the dollar. That is an arbitrage opportunity right there. 3. The saving account with 0.85 APY and a federal covering of $250000. > It would be illegal for PayPal to back its new crypto-based dollars with the assets listed above, yet for some reason it is fine if it backs its traditional dollars with them. > The second drawback of PayPal's regular dollars is that the assets underlying them don't really "belong" to customers in any strong sense of the word. They belong to PayPal. > To translate, the assets underlying your $1000 in PayPal USD cryptodollars are not PayPal's assets. Nor are they Paxos's. They are yours. No need to squabble with competing vultures for what's left. > But oddly, PayPal is under no legal obligation to extend these very sensible protections to all of its regular PayPal dollars. > the third type is insured by the government up to $250,000. PayPal Savings dollars also pay interest, whereas the first two don't, or are prohibited from doing so. PayPal offers this product in conjunction with a bank, Synchrony Bank, which means this third type of PayPal dollar conforms to an entirely different set or rules than the other two: Federal banking law.

gumby 3y ago

Isn't there a transaction cost of holding (well, of using) the stablecoins compared to holding the ordinary debt? That would make the crypto version significantly worse unless you thought there were a chance of paypal going under, in which case the better strategy is to switch to something else (obv not venmo!). The graph in the article seems to show that a dollar of the crypto is worth 50 basis points less than an actual dollar.

latchkey 3y ago

Old but still relevant: https://techcrunch.com/2010/10/26/wepay-ice-paypal/ https://techcrunch.com/2010/10/26/wepay-ice-paypal/

rtpg 3y ago

In Europe isn't PayPal a bank? Therefore there might be three kinds of PayPal dollars?