For PayPal Stablecoin Partner, $300T Error Is More Minor Mishap Than Real Risk

Crypto watchers got another taste of just how different digital and traditional finance are last week when stablecoin issuer Paxos accidentally minted $300 trillion of PayPal’s PYUSD stablecoin before detecting the error and destroying the funds.

That all happened within just 30 minutes, and yes, the word trillion is correct. For perspective, $300 trillion is almost three times the world’s total estimated GDP. 

“This was an internal technical error. There is no security breach. Customer funds are safe,” Paxos said in a post on X following the event. The error was part of an internal transfer, Paxos explained, and it immediately identified the mistake and “burned” the excess PYUSD it had created.

Fat Fingers

With the use of stablecoins growing dramatically in recent years due to their low cost and ability to speed up transactions, particularly for cross-border payments, the issue sparked concerns for investors, especially those less knowledgeable about their mechanics. PYUSD is the world’s sixth-largest stablecoin with a current market cap of $2.7 billion, and PayPal says each token is fully backed by US dollar deposits, US treasuries and similar cash equivalents. Therefore, each token should always be redeemable on a 1:1 basis for US dollars.

Despite the massive headline number and the resulting anxiety, however:

• No funds in the Paxos incident were actually transferred to customer wallets or redeemed by anyone. 
• Additionally, the error was visible and quickly identified on Etherscan, the public “block explorer” for the Ethereum blockchain that lists all transactions occurring on the network. Similar “fat finger” errors in the world of traditional finance might go undiscovered or get revealed only when they are reported to regulators:

“It’s more like a little bit of egg on the face for Paxos,” said Carlos Guzman, research analyst at crypto trading firm GSR. “But it was just an internal transfer, so the actual backing of the assets of the token were never at any risk.”

Indeed, there are only about $2.3 trillion US dollars in circulation in the whole world, so there’s no way $300 trillion in PYUSD could have been officially created in the first place. 

Code Red: The incident, however, does highlight how digital asset issuers, and stablecoin issuers in particular, are able to both create and destroy billions and even trillions of dollars instantly, wielding only the power of code. And so better internal controls are likely needed to prevent incidents like this from occurring again in the future. In 2019, for example, Tether, which issues the world’s largest dollar-pegged stablecoin USDT, accidentally minted and then quickly destroyed $5 billion in USDT. While such cases reveal the unique perils and possibilities of crypto, they simultaneously underscore its similarities to traditional markets, which also come with unforeseen risks. In other words, caveat emptor.