The cryptocurrency landscape took a significant leap forward when PayPal announced the launch of its U.S. dollar-pegged stablecoin, PayPal USD (PYUSD), on August 7. This marks a pivotal moment in mainstream financial integration with blockchain technology. As one of the world's most recognized digital payment platforms enters the crypto space, PYUSD has quickly drawn attention not only for its branding power but also for its technical foundation.
Deployed on the Ethereum mainnet and issued by Paxos, PYUSD’s smart contract code reveals a familiar architecture—nearly identical to that of USDP, another Paxos-issued stablecoin. The only notable addition is an external function called increaseSupply, used to mint new tokens. This structural consistency reflects a proven and audited codebase, emphasizing security and regulatory compliance.
In this comprehensive analysis, we'll explore the inner workings of major centralized stablecoins—including USDT, USDC, BUSD, USDP, and now PYUSD—through the lens of their smart contract logic. Using insights from Beosin VaaS (Verification as a Service), we’ll uncover key features such as blacklist mechanisms, fee structures, and innovative functions like gasless transfers.
How Centralized Stablecoins Work
Centralized stablecoins are typically backed by fiat reserves held in traditional banking systems. For every token issued on-chain, the issuer holds an equivalent amount of off-chain assets—usually U.S. dollars—in reserve. These reserves are periodically audited to ensure transparency and solvency.
While they offer price stability and serve as crucial bridges between traditional finance (TradFi) and decentralized finance (DeFi), these stablecoins come with centralized control mechanisms embedded directly into their smart contracts.
Let’s examine how some of the leading players implement these controls.
USDT: Fees and Full Control
Tether (USDT) remains the largest stablecoin by market capitalization. Its contract reveals two important aspects of centralized control:
Potential Transaction Fees
USDT includes two variables: basisPointsRate and maximumFee. Together, they allow Tether Limited to charge users a transaction fee—up to 50 USDT per transfer. While currently set to zero, this mechanism gives Tether the flexibility to monetize usage if needed in the future.
👉 Discover how top stablecoins manage user transactions and control mechanisms.
Blacklist Functionality
More notably, USDT implements a blacklist system. If an address is added to the blacklist:
- It cannot call
transfer()ortransferFrom(). - Tether can invoke
destroyBlackFunds()to zero out the balance of any blacklisted address.
This powerful function underscores the centralized nature of USDT and raises concerns about censorship resistance—though it aligns with AML/KYC compliance requirements.
Contract Address: Etherscan - USDT
USDC: Simpler Controls, No Fees
Compared to USDT, USD Coin (USDC) takes a more restrained approach:
- No transaction fees are implemented.
- Like USDT, it maintains a blacklist mechanism, preventing blacklisted addresses from interacting with the contract at all.
- However, Circle (the issuer) does not have a function to destroy funds—balances remain intact even if an address is frozen.
This design offers slightly more user protection while still enabling regulatory compliance.
All external functions require the caller to be outside the blacklist, ensuring enforceable restrictions without asset confiscation.
USDP, BUSD, and PYUSD: Shared Architecture with Innovations
USDP (Paxos Standard), BUSD (Binance USD), and now PYUSD share nearly identical codebases—indicating a common development lineage under Paxos. These stablecoins introduce several advanced features beyond basic blacklisting.
1. Freezing and Fund Wiping
These tokens use a frozen list to restrict transfers from specific addresses. More critically, they include the wipeFrozenAddress() function—functionally equivalent to USDT’s destroyBlackFunds()—which allows issuers to reset the balance of frozen accounts to zero.
This reinforces regulatory compliance but also highlights centralization risks.
2. Asset Protection Role (White-Listed Operators)
A unique feature is the assetProtectionRole, which acts like a privileged white list. Addresses assigned this role can:
- Add others to the frozen list
- Call
wipeFrozenAddress()
This role-based access control adds a layer of operational security, limiting who can execute sensitive actions.
3. Gasless Transfers via Delegated Transactions
One of the most innovative features in this codebase is support for gasless transactions through two functions:
betaDelegatedTransfer()betaDelegatedTransferBatch()
These allow users to sign transaction data off-chain while authorizing a trusted party (e.g., a relayer service) to submit it on-chain. The result? Users avoid paying gas fees directly—a major usability improvement for mainstream adoption.
This feature could be especially valuable for PayPal users unfamiliar with crypto wallets or gas mechanics.
Contract Example: Etherscan - USDP/PYUSD
👉 Explore how next-gen stablecoins enable seamless, low-cost transactions.
Why PYUSD Matters for Mass Adoption
PayPal’s entry into the stablecoin arena is more than symbolic—it’s strategic. With over 400 million active accounts, PayPal brings unparalleled reach to the blockchain ecosystem. By leveraging Paxos’ battle-tested infrastructure, PYUSD combines regulatory compliance with technical robustness.
Its deployment on Ethereum ensures compatibility with DeFi protocols, NFT marketplaces, and Web3 applications—opening doors for millions to engage with decentralized services without needing deep technical knowledge.
Moreover, features like gasless transfers lower entry barriers significantly. Imagine users sending PYUSD via their PayPal app without ever seeing a wallet interface or gas fee warning.
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Frequently Asked Questions (FAQ)
Q: Is PYUSD backed 1:1 with U.S. dollars?
Yes, PYUSD is fully backed by U.S. dollar deposits and short-term U.S. Treasuries, ensuring a 1:1 peg to the USD.
Q: Can PayPal freeze or delete my PYUSD?
Technically, yes. Like other Paxos-issued stablecoins, PYUSD uses a frozen list and includes a wipeFrozenAddress() function that allows authorized entities to zero out balances of restricted addresses.
Q: Does PYUSD charge transaction fees?
No, PYUSD does not currently impose transaction fees. However, future changes would depend on policy decisions by Paxos and PayPal.
Q: How is PYUSD different from USDT or USDC?
PYUSD shares code similarities with USDP and BUSD rather than USDT or USDC. Its key differentiator is integration with PayPal’s global payment network and support for gasless transactions.
Q: Where can I use PYUSD?
PYUSD operates on Ethereum and is compatible with any wallet or DeFi platform supporting ERC-20 tokens. Over time, expect broader integration within PayPal’s ecosystem.
Q: Who controls the PYUSD smart contract?
Paxos Trust Company is responsible for issuing and managing the PYUSD contract, under regulatory oversight and in partnership with PayPal.
Final Thoughts
The launch of PYUSD represents a milestone in bridging traditional finance with blockchain innovation. While concerns around centralization persist—especially regarding blacklist capabilities and fund wiping—the underlying technology offers enhanced usability features like gasless transfers that could drive mass adoption.
As more financial giants explore tokenization, understanding the code behind these assets becomes essential—not just for developers, but for every informed participant in the digital economy.
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