Paxos accidentally minted $300 trillion in PYUSD today, prompting community incredulity. The firm quickly burned these tokens and minted $300 million, claiming user error.
This gaffe has highlighted a real concern in stablecoins: these protocols don’t need proof of reserves to mint tokens. Web3-native solutions could power new mechanisms, but issuers may not wish to implement them.
Paxos’ PYUSD Blunder
PayPal has been expanding its PYUSD stablecoin recently, adding new blockchains with a series of partnerships. One recent incident, however, may shake confidence in the token and its entire sector. In an apparent error, Paxos minted $300 trillion worth of PYUSD today, which is more money than exists in the entire world economy:
Paxos quickly burned the PYUSD and minted a much more reasonable $300 million around an hour later. This led commentators to suspect a “fat finger” typo, where a user accidentally inputted the wrong number of zeroes. The firm later obliquely confirmed these rumors, saying that no foul play took place.
A Big Problem for Stablecoins
Still, though, this incident has caused a lot of concern from industry observers. The stablecoin market is larger than ever, firms are aiming for unprecedented valuations, and the US government has major policy plans for this sector. Shouldn’t there be more guardrails to prevent Paxos from accidentally minting this much PYUSD?
Furthermore, Paxos has had a few run-ins with the law, and PYUSD also faces community scrutiny. Almost exactly one year ago, PYUSD’s market cap dropped 40% without warning, raising fears of manipulation. These red flags have been visible, yet there was no safeguard to prevent this massive token minting.
Specifically, blockchains are meant to be trustless. It’d be easy to hard-code a mechanism into the blockchain that’d prevent Paxos from minting this PYUSD without sufficient collateral. This incident conclusively reveals that there’s no such function in place; protocols can mint stablecoins without any proof of reserves.
This sort of behavior is all over the stablecoin industry. Although Tether has been preparing for a third-party audit for several months now, no audit has actually taken place. Most stablecoins haven’t suffered such ridiculous errors like Paxos and PYUSD did today, but we don’t have any real proof that other tokens actually possess bigger guardrails.
In other words, signs like this are very concerning for the entire sector. Even though Paxos cleaned up its error quickly, this never should’ve happened. Gaffes like this could damage TradFi’s commitment to stablecoin investment.
