Functions hidden in the PayPal stablecoin code: assets can be frozen, and addresses can be cleared

Author: jk, OdailyNews

PayPal's Stablecoin Launch

This Monday, PayPal launched its latest ERC-20 stablecoin, PYUSD. Like mainstream stablecoins, PYUSD is pegged to the US dollar, allowing for a 1:1 exchange with the dollar, backed by US short-term treasury bonds, cash, and other equivalents. Monthly reserve reports will be published and audited by accountants. PayPal states that this asset is primarily designed to simplify online virtual transactions, making it easier for developers to receive funds directly. This attempt marks the first exploration in this area by a significant financial enterprise in the United States.

After the announcement, PayPal's stock price rose by over 2%, reaching nearly $65; however, the following day, the stock quickly dropped from around $65 to $62.65, currently reported at $62.79.

PayPal's stock price on Monday. Source: Google Finance

According to PayPal's official website, eligible US PayPal customers will be able to:

• Transfer PayPal USD between PayPal and compatible external wallets;

• Use PYUSD for peer-to-peer payments;

• Choose to pay with PayPal USD at checkout;

• Convert any cryptocurrency supported by PayPal to and from PayPal USD.

Dan Schulman, President and CEO of PayPal, stated, "The shift to digital currency requires a stable tool that is both digitally native and easily connected to fiat currencies like the dollar. Our commitment to responsible innovation and compliance, along with a strong track record of providing new experiences for customers, lays the necessary foundation for PayPal USD to drive growth in digital payments."

Code of PayPal's Stablecoin

This week, discussions about the "commercial impact and implications for existing stablecoins" of PYUSD have been quite extensive. Here, Odaily Planet Daily aims to further understand PYUSD from a technical characteristics perspective.

Following PayPal's announcement, the official Bitcoin Twitter account @Bitcoin posted a message: What do you think about this piece of code in PayPal's stablecoin?

PayPal stablecoin code. Source: Bitcoin Official Twitter

In the highlighted part of the image, two functions appear: Freeze and wipeFrozenAddress. This means that PayPal can centrally freeze or unfreeze wallet addresses that it deems malicious, and can also wipe all assets from those addresses. Although block generation is immutable, PayPal can effectively prohibit certain transactions or freeze assets in certain addresses through this code.

In other words, centralized entities can perform many operations that were previously impossible on the blockchain. While this authority can prevent many scams and hacking incidents in the crypto world, it is traditionally viewed as a violation of the decentralization spirit of blockchain and cryptocurrency.

Similarly, Twitter user @0xCygaar also posted a tweet revealing more centralized operations within PayPal's stablecoin:

PayPal stablecoin code. Source: @0xCaggar Twitter

Thus, this PayPal stablecoin contract:

• Is written in a very old version of Solidity;

• Allows the owner to pause all transfers;

• Allows the owner to freeze addresses to prevent operations;

• Allows administrators to arbitrarily increase or decrease the total supply;

At least it is centralized, but still somewhat transparent."

For a long time, the cryptocurrency world has advocated the principle of decentralization, believing that digital currencies should break free from central control in traditional financial systems to achieve true freedom and fairness.

Looking closely at the aforementioned functions of PYUSD, the ability to increase or decrease maximum supply may seem reasonable: if users continuously purchase or mint more PYUSD with more dollar assets until exceeding the maximum supply, then there should logically be a function to adjust the supply. However, compared to compliant stablecoins like USDC, PayPal's dual identity as both issuer and trading platform grants it the ability to temporarily halt transfers and freeze addresses.

Reactions

The examination of PayPal's stablecoin code has stirred quite a wave in the crypto world. In the comment sections of the two aforementioned tweets, many cryptocurrency users expressed their concerns, with numerous comments stating, "This is classic Web2 company behavior," and keywords related to regulation and centralization frequently appearing.

Twitter user @mdhaf.eth said, "PayPal has long been known for freezing accounts without user permission (usually due to internal policies or external influences). This (PYUSD) may make more people aware of crypto digital assets, but most won't delve into the underlying code or the company's ethical standards. This is not surprising, but it is indeed disappointing."

However, a considerable number of people expressed differing opinions: user @LawLingo stated, "This is a common occurrence. $USDT, $USDC, and $USDD also have this feature. Any acceptance of cryptocurrency is good." She believes that large-scale adoption should come first, allowing decentralization to gradually manifest. Upon review, Circle's terms on its official website state that in certain cases, USDC can refuse to process transactions or suspend user services, "if we reasonably believe the transaction is suspicious, potentially involving fraud or misconduct." However, Circle also clearly states, "All transactions conducted through USDC services are irreversible and non-refundable." In contrast, PayPal's authority over PYUSD and its control on the PayPal platform is significantly greater and more centralized.