PayPal and decentralization. Online payments giant PayPal has been interested in cryptocurrencies for several years now. Earlier this week, PayPal surprised the entire industry by unveiling its stablecoin PYUSD on Ethereum. However, its implementation raises some questions.
PYUSD: PayPal launches its stablecoin
As we have just seen, PayPal has launched its own stablecointhe PYUSD. In practice, it is backed by the US dollar.
Technically speaking, PYUSD is a ERC-20 token deployed on the Ethereum blockchain. Although deployed on a public blockchain, the token has geographical limitations.
In fact, it can only be sent to eligible accounts based in the United States.
While PayPal’s arrival in the ecosystem may reinforce the democratization of cryptos, the underside of PYUSD is a far cry from its founding ideals.
Lack of decentralization
Naturally, in the wake of the PYUSD announcement, many Internet users went in search of the latest information. smart contracts of the token to better understand how it works.
Spoiler: it’s not looking good.
Indeed, as BTC_Culture pointed out on TwitterThis stablecoin is just like PayPal. Indeed, the company is known for its tendency to more or less randomly block its customers’ accountswith no obvious reason.
Well, this same logic is also present in the PYUSD code.
Thus, the token’s source code has two « fund protection » functions.
On the one hand, there’s the function freeze which allows freeze PYUSD on a given address. As a result, the user is no longer able to transfer his tokens.
On the other hand, the wipeFrozenAddress goes one step further by deleting all PYUSD tokens deposited on an address that has previously been frozen.
Therefore, using PYUSD, users expose themselves to significant centralization risks.
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Classic stablecoin scheme
So yes, PYUSD has asset freeze functions. Unfortunately, this is standard in so-called centralized stablecoins.
Indeed, whether it’s Tether’s USDT or Circle’s USDC, both have fairly similar freezing functions.
These have been used for a variety of purposes in recent years. On the one hand, they can be used to freeze assets stolen by a hacker. This was the case last July, when 62 million dollars were frozen following the MultiChain hack.
On the other hand, in a more questionable way, notably in the case of freezing assets on an address, because it has interacted with protocols deemed dangerous, such as Tornado Cash. This was the case in August 2022, when Tether complied with OFAC recommendations regarding addresses that had interacted with Tornado Cash.
At the same time, other stablecoin initiatives are emerging. These include Aave, the lending giant on Ethereum, launched its decentralized stablecoin GHO last July.. These offer more decentralized alternatives to the stablecoins issued by Tether, Circle or now PayPal.
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