PayPal Launches Stablecoin PYUSD: A Deep Dive into Centralized Stablecoin Contract Code

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The cryptocurrency world witnessed a significant milestone on August 7, when financial giant PayPal announced the launch of its U.S. dollar-backed stablecoin, PayPal USD (PYUSD). Issued by Paxos and deployed on the Ethereum mainnet, PYUSD marks a major step toward mainstream adoption of digital assets through trusted financial infrastructure.

A close examination of its smart contract reveals that PYUSD’s codebase is nearly identical to that of USDP, another Paxos-issued stablecoin. The primary addition in PYUSD is an external function called increaseSupply, used to mint new tokens as demand grows. This structural similarity highlights a shared foundation among Paxos-backed stablecoins—emphasizing security, compliance, and operational efficiency.

Unlike decentralized cryptocurrencies such as Bitcoin or Ethereum, centralized stablecoins are typically backed by fiat reserves held in regulated bank accounts. These reserves ensure each token maintains a 1:1 peg with the underlying currency—usually the U.S. dollar. While this model introduces centralization risks, it also enables faster regulatory alignment and integration with traditional finance.

In this analysis, we use Beosin VaaS (Verification as a Service) to scan and evaluate the core logic of major centralized stablecoin contracts, identifying key differences in functionality, governance controls, and user protections.

USDT: Functionality and Control Mechanisms

Tether (USDT) remains the most widely used stablecoin by market capitalization. Its contract contains several notable features that reflect its centralized control structure.

Potential Transaction Fees

The USDT contract includes two variables: basisPointsRate and maximumFee. These were originally designed to allow Tether Limited to charge transaction fees—up to a maximum of 50 USDT per transfer. Although these values are currently set to zero, meaning no fees are charged, their presence indicates the potential for future monetization or regulatory enforcement mechanisms.

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Smart contract address: 0xdac17f958d2ee523a2206206994597c13d831ec7

Blacklist Capability

One of the most controversial aspects of USDT is its blacklist function. Certain addresses can be added to a restricted list, preventing them from calling transfer() or transferFrom(). More critically, Tether has the authority to invoke destroyBlackFunds(), which destroys all USDT balance of a blacklisted address.

This level of control raises concerns about censorship and asset seizure but aligns with anti-money laundering (AML) and know-your-customer (KYC) requirements imposed by regulators.

USDC: Simplicity with Compliance Focus

USD Coin (USDC), issued by Circle, takes a more streamlined approach compared to USDT.

No Transaction Fees

Unlike USDT, USDC does not include any mechanism for charging transaction fees. This design choice enhances predictability for users and developers building on top of USDC.

Blacklist Enforcement Without Fund Destruction

USDC implements a blacklist system similar to USDT—addresses on the list cannot interact with the contract at all. However, there is no equivalent to destroyBlackFunds(). While blacklisted accounts lose functionality, their balances remain intact unless legally mandated otherwise.

All external functions in the USDC contract require the caller to not be on the blacklist, ensuring strict compliance enforcement across all operations.

This reflects a more restrained approach to control—prioritizing regulatory compliance while minimizing direct interference with user funds.

USDP, BUSD, and PYUSD: Shared Architecture and Advanced Features

Stablecoins issued by Paxos—USDP, Binance USD (BUSD), and now PYUSD—share a common codebase, suggesting a modular and audited framework designed for scalability and regulatory adherence.

Blacklist and Fund Wiping

Like other centralized stablecoins, USDP, BUSD, and PYUSD support freezing addresses via a frozen list. Once frozen, an address cannot transfer tokens. Additionally, these contracts include a function called wipeFrozenAddress(), which functions similarly to USDT’s destroyBlackFunds()—it resets the balance of a frozen address to zero.

This capability underscores the issuer’s power to enforce compliance and respond to illicit activity.

White-Listed Governance Roles

These contracts introduce a role-based access control system centered around assetProtectionRole. Addresses assigned this role can:

This acts as a whitelist for administrative actions, limiting sensitive operations to authorized entities only.

Gasless Transactions via Delegated Transfers

One of the standout innovations in the Paxos codebase is support for gasless transfers through two functions:

These allow users to sign transactions off-chain and delegate execution to a third party (e.g., a relayer), who pays the gas fee. This enables:

For PayPal, this feature could be pivotal in enabling smooth, invisible blockchain interactions for millions of non-crypto-native users.

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Contract example: 0xe17b8adf8e46b15f3f9aB4bb9e3b6e31db09126e

Frequently Asked Questions (FAQ)

Q: What is PYUSD?
A: PYUSD is PayPal’s U.S. dollar-backed stablecoin, issued by Paxos and operating on the Ethereum blockchain. Each token is backed 1:1 by U.S. dollars and eligible reserve assets.

Q: Is PYUSD decentralized?
A: No. Like USDT and USDC, PYUSD is a centralized stablecoin. PayPal and Paxos control issuance, freezing, and compliance enforcement through administrative roles in the smart contract.

Q: Can PayPal freeze my PYUSD?
A: Yes. If your wallet address is added to the frozen list by the asset protection role, you will not be able to transfer PYUSD tokens. In extreme cases, balances may be wiped under legal obligation.

Q: Why are blacklists used in stablecoins?
A: Blacklists help issuers comply with global AML/KYC regulations. They allow freezing of funds linked to illegal activities such as fraud, hacking, or money laundering.

Q: Does PYUSD charge transaction fees?
A: Currently, no. There is no fee mechanism active in the contract. However, like USDT, future upgrades could theoretically introduce fees if governance parameters change.

Q: How does gasless transfer work in PYUSD?
A: Using signed messages off-chain, users authorize trusted relayers to execute transfers on their behalf. The relayer pays gas, enabling zero-cost transactions for end users—an ideal model for mass-market adoption.

Final Thoughts

The launch of PYUSD represents a watershed moment in the convergence of traditional finance and blockchain technology. With PayPal’s vast user base and global reach, this stablecoin has the potential to onboard millions into the digital asset ecosystem.

From a technical perspective, PYUSD inherits a robust and battle-tested codebase from Paxos—featuring blacklist controls, role-based governance, and innovative gasless transaction support. While these features enhance compliance and usability, they also reinforce the centralized nature of such assets.

As more institutions enter the space, understanding the inner workings of stablecoin contracts becomes essential—not just for developers and auditors, but for every informed participant in the Web3 economy.

Whether you're exploring investment opportunities, building decentralized applications, or simply navigating the evolving digital currency landscape, staying informed about how these foundational assets operate is crucial.

👉 Stay ahead in crypto—learn how leading platforms handle stablecoin integrations securely.

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