If PayPal’s Stablecoin Is a Security, Anything Could Be

The U.S. Securities and Exchange Commission (SEC) is requesting documents related to PayPal’s relatively new stablecoin, PYUSD. The payments giant is reportedly complying with the request, it disclosed in a quarterly report.

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This marks the latest in a series of regulatory actions against the crypto industry taken by the securities regulator led by Chairman Gary Gensler. Notably, the SEC filed suit against the Binance-brand BUSD stablecoin issued by Paxos in March. PayPal’s stablecoin is also a product co-managed by Paxos.

To many observers, this latest “Well’s Notice,” which typically precedes but doesn’t always lead to an official lawsuit, reeks of the SEC “picking winners” in the emergent world of crypto. In a sub-sector dominated by crypto natives, PayPal was the first major fintech to launch a stablecoin, followed shortly after by VISA.

At launch, in the depths of “crypto winter,” PayPal’s entrance signaled a strong show of support for the technology, which many see as beneficial to U.S. interests. Stablecoins are primarily denominated in U.S. dollars, and so arguably increase global demand for and access to greenbacks, which could be said to bolster U.S.’ monetary hegemony.

Though the PYUSD launch was also a controversial move. Rep. Maxine Waters (D-CA), who until recently led the important House Financial Services Committee (from 2019 to 2023), said she was “deeply concerned” about the stablecoin in August. Stablecoins are a significant point of contention for U.S. lawmakers and regulators, and one of the few areas of crypto where progress is being made on the legislative front.

Waters has said the “issuance of a new form of money” requires “federal guardrails.”

But this may not actually be true. As Jesse Austin Campbell (who goes by his middle name) said, there is a massive exception to the so-called “Howey Test,” the guideline used by the SEC to determine what falls under its remit, which will likely be cited to argue that PYUSD is an “investment contract” under existing securities laws if the SEC decides to file suit.

“The problem is … if you are already in a more…