The leading stablecoin issuer Paxos has received regulatory approval to expand its products to the Solana blockchain, which it plans to launch on January 17, 2024.
With peers including Circle and Tether vying for critical market share, the expansion is a major step for Paxos, which touts its relationship with the New York Department of Financial Services (DFS).
"Paxos is the most regulated stablecoin issuer in the world," Walter Hessert, the head of strategy at the firm, told Fortune in an interview. "We are the only company that has been issuing regulated stablecoins at scale—period."
Stablecoin wars
Cofounded by financial veteran Charles Cascarilla, Paxos became the first crypto firm to receive a trust charter under the new digital asset regulatory regime implemented by DFS in 2015. To this day, DFS remains the sole U.S. financial regulator to implement a comprehensive framework for crypto, which has attracted a number of leading companies, including Coinbase and Gemini.
Paxos received DFS approval to issue its first stablecoin in 2018, which it called Paxos Standard, rebranding the token to USDP in 2021. Stablecoins are a type of crypto token pegged to an underlying asset—in this case, the U.S. dollar. Unlike the other leading USD-pegged stablecoins Tether and Circle's USD Coin, Paxos only issues USDP on Ethereum due to restrictions by DFS.
Paxos has argued that its commitment to working directly with DFS on issuance, rather than operating outside of the framework of a financial regulator, sets it apart from competitors. While Tether is often critiqued for its offshore, opaque operations, Circle also presents itself as following U.S. regulatory standards, although it does not issue USDC under DFS supervision. As a result, Circle offers USDC across more than a dozen blockchains, including Tron, which has come under fire in recent months for facilitating illicit finance.
"From a growth perspective, you'd like to issue across every single chain," Hessert said. "Circle and other players can issue on to other protocols, but no one knows who's overseeing it—or what their process is."
He argued that Paxos's approach helps gain trust with its partners, including major financial players like MercadoLibre, Paypal, and Mastercard, that customer protections are in place.
Even so, Paxos has had its missteps. One of its first stablecoins, BUSD, was issued in partnership with the leading crypto exchange Binance. After reports surfaced that Binance was creating a synthetic version of the stablecoin with questionable reserves, DFS ordered Paxos to stop issuing the token. As Fortune later reported, over 95% of Paxos's revenue came from that partnership.
Hello, Solana
Paxos received a "non-objection" from DFS to expand USDP from Ethereum to Solana, after what a spokesperson described as an "extensive and exhaustive review," although the firm declined to specify how long the process took.
While Hessert declined to say what type of information DFS required for the Solana expansion, citing the confidential supervisory process, he said it involved an internal risk framework built by Paxos to assess the blockchain and its processes, including its compliance protocols.
First launched in early 2020 with the promise of increasing transaction speeds and reducing costs compared to Ethereum, Solana became one of the most popular blockchains before taking a major hit last year due to its association with Sam Bankman-Fried. While its native token, SOL, is still far off from its all-time high of about $260, it has gained substantial traction over the past month.
View this interactive chart on Fortune.com
Hessert said Solana's speed and cost relative to Ethereum will make it an attractive option for Paxos's partners, who aim to implement stablecoin in use cases from cross-border remittances to payments for goods and services.
"We're actually going to start to see this new wave of adoption be enabled in ways that we haven't seen in stablecoins yet," he told Fortune.
For now, Paxos's highest-profile project is its new stablecoin PYUSD, issued in partnership with PayPal. Hessert said he imagines that firms like PayPal will want to expand to Solana. Paxos's first Solana-based offering will be USDP, which has a market cap of just $370 million, compared to nearly $25 billion for USDC and nearly $94 billion for Tether.
A spokesperson for PayPal declined to comment.
Hessert said Paxos hopes to gain approval to issue stablecoins across other layer-1 and layer-2 blockchains, although he declined to provide specific examples.
