Representing a hefty market capitalization of $120 billion, stablecoins are becoming core financial instruments. PayPal has recently joined the fray with PYUSD.

Found within the coin’s code, we can start to see a glimpse of the features that betray some of the necessary compromises that must arise when integrating digital assets with a traditional financial services and payments infrastructure. Unique stablecoin functions have been included in the smart contract implementation by PYUSD that seem to merge the centralized and decentralized controls.

In adherence to regulatory requirements set by the New York Department of Financial Services (NYDFS), PayPal and Paxos, PYUSD’s official issuer, have instituted an “Asset Protection Role.” This role possesses the ability to freeze or unfreeze PYUSD balances on-chain, ensuring assets aren’t misappropriated or misused. (See below.) Although this measure offers an extra layer of protection for assets and aligns with regulatory directives, it does bring up concerns about the level of control a centralized body might hold, especially when compared to the restraints of conventional banking practices.

At its core, Paxos holds the commitment that every PYUSD is grounded by an equivalent US dollar in reserve. This is overseen by a dedicated “supplyController” role (see below) endowed with the capacity to mint or burn tokens. However, it’s important to note that while this action suggests a reflection of the cash movements, the true mechanism behind it might be a concrete system or simply based on trust.

While the above features will surprise few in the context of stablecoins, they do provide a line-by-line look at how fiat can (and must!) interface with the digital world, particularly against the backdrop of state-controlled CBDC’s and other attempts to bridge the two approaches. (It’s worth noting that the code that governs PYUSD is many times the size of USDC’s, likely bringing with it additional complexities and risks.) Regardless of one’s philosophical biases in the matter, one thing is for certain: It’s through crypto that the rules of money are actually examinable. That transparency, itself, is progress.