PayPal Crypto Holdings Report

[FatFork]

According to a report filed with the US Securities and Exchange Commission ^[1], PayPal held $604 million worth of cryptocurrencies, including Bitcoin, Ethereum, Litecoin and Bitcoin Cash, as of December 31, 2022. Bitcoin is the largest part of PayPal's crypto holdings, accounting for $291 million. Ethereum was second, with $250 million, and the remaining $63 million was split between Litecoin and Bitcoin Cash. PayPal's crypto holdings accounted for 67% of the company's total financial liabilities of $902 million. The company's total financial assets were over $25 billion. Despite offering cryptocurrency services for more than two years, this is the first time PayPal has provided a breakdown of its crypto holdings in its annual financial report.

An article on Cointelegraph ^[2] reports that PayPal keeps its customers' cryptocurrencies through the use of a third-party custodian. The company emphasized in the filing that it has a contractual agreement in place with the custodian mandating the segregation of customer assets and prohibiting their mix with the custodian's proprietary or other assets. However, PayPal stated that they cannot guarantee the effectiveness of these contractual obligations in the event of the custodian's bankruptcy or insolvency.

I'm not sure whether PayPal has enabled the withdrawal of cryptocurrency funds to personal wallets for all users. However, it appears that many still don't fully grasp the significance of the adage "not your keys, not your coins."


[1] - https://d18rn0p25nwr6d.cloudfront.net/CIK-0001633917/b562e712-8266-493c-8ae8-e28f93404d2f.pdf
[2] - https://cointelegraph.com/news/paypal-held-604m-in-bitcoin-and-other-crypto-by-the-end-of-2022

[tbct_mt2]

An article on Cointelegraph ^[2] reports that PayPal keeps its customers' cryptocurrencies through the use of a third-party custodian. The company emphasized in the filing that it has a contractual agreement in place with the custodian mandating the segregation of customer assets and prohibiting their mix with the custodian's proprietary or other assets. However, PayPal stated that they cannot guarantee the effectiveness of these contractual obligations in the event of the custodian's bankruptcy or insolvency.

I hope people will read those reports and be aware better about high risks if they use Paypal to buy cryptocurrency and store their cryptocurrency with Paypal accounts.

Not your keys not your coins. It is true for Paypal and Paypal users too. Both Paypal and Paypal users don't have keys of cryptocurrency and what Paypal users get is only a digital number credited to their accounts. The actual cryptocurrency amount is hold by a third-party custodian company, not Paypal.

Risk to see the contract broken by that third-party custodian company is real. You can use Paypal to buy cryptocurrency if you don't want to use other platforms but withdraw your cryptocurrency to your non custodial wallets instantly after your deal on Paypal is done.

[PX-Z]

I'm not sure whether PayPal has enabled the withdrawal of cryptocurrency funds to personal wallets for all users. However, it appears that many still don't fully grasp the significance of the adage "not your keys, not your coins."

Actually many people or crypto users knows about this line but still prefer to rely to these financial institutions ^{(kyc required)} because of so many reasons including laziness, no sense of responsibility, victims of false security and many more. That's why institutions like this still running and lots of users than non-custodial users. Well, with the previous shutting down of different institutions lots of these users lost their funds which is one of the risks of using them and the ideal reasons why "not your keys, not your coins" line exists.

[o_e_l_e_o]

So if you buy bitcoin via PayPal, then you don't even have an IOU like you do at a centralized exchange, but you have an IOU of an IOU. Some unknown third party promises to pay PayPal x amount of bitcoin, and PayPal promise to then pay you that amount of bitcoin. Somehow, they have made buying bitcoin involve even more third parties than using a bank, rather than the zero third parties bitcoin was designed for. That's so awful it's almost impressive.

The SEC document is very clear, though - coins are not yours, PayPal have absolutely no idea how secure or not the coins are or what the unnamed third party is doing with the coins, and in the event of bankruptcy/scams/hacks/whatever you will almost certainly get nothing back (just like the users of FTX, Celsius, Voyager, etc.). No doubt when it all comes crashing down then just like every other centralized exchange in the past few months there will be plenty of angry users who did not bother to read any of this and realize what they were signing up to.

[RapTarX]

An article on Cointelegraph ^[2] reports that PayPal keeps its customers' cryptocurrencies through the use of a third-party custodian.

How come such a big institution can't operate its own Cold wallet? Such a bad move. They, in fact, are still in the same boat they used to be in despite the fact that their platform enabled crypto exchange/deposit. I can't imagine what new excuses may come in the coming future from their custodian party.

Risk to see the contract broken by that third-party custodian company is real. You can use Paypal to buy cryptocurrency if you don't want to use other platforms but withdraw your cryptocurrency to your non custodial wallets instantly after your deal on Paypal is done.

Did you mean Paypal allow its user to withdraw their fund? IIRC, their platform wasn't allowing any such on-chain transaction. They didn't allow their users to withdraw the fund in form of cryptocurrency.

[dkbit98]

I am not surprised they are holding so much Bitcoins, and nobody knows how much fiat money they confiscated for all this years 
Maybe someone heard that PayPay was working on creating their own stable ccoin cryptocurrency for some time, but after recent regulations changes they decided to temporary stop with that activity.
They worked with Paxos to create this new ''stable'' Paypal coin, but Paxos is currently under investigation by NY financial regulators, maybe because Binance is involved in alll this.
I wouldn't connect any Bitcoin with PayPal account, and I wouldn't use any potential stable coin they may release in future.
More info about this:
https://archive.ph/oZP0B

[Stalker22]

Risk to see the contract broken by that third-party custodian company is real. You can use Paypal to buy cryptocurrency if you don't want to use other platforms but withdraw your cryptocurrency to your non custodial wallets instantly after your deal on Paypal is done.

Did you mean Paypal allow its user to withdraw their fund? IIRC, their platform wasn't allowing any such on-chain transaction. They didn't allow their users to withdraw the fund in form of cryptocurrency.

Yes, that's correct. Currently, PayPal does not allow all their users to withdraw their crypto holdings in the form of an on-chain transaction to a personal wallet. Instead, they allow users to buy and sell cryptocurrency within the PayPal platform, but the actual funds are held by PayPal and not under the control of the user.

The last news I read about this:

08/12/2022 Update: We are pleased to announce that all eligible PayPal account holders in the U.S. can now transfer, send and receive cryptocurrency with PayPal. Download the PayPal app or log in to your account to learn more.

We are thrilled to announce that starting today, PayPal supports the native transfer of cryptocurrencies between PayPal and other wallets and exchanges

But I think this is still valid only for US based users.

[Darker45]

Risk to see the contract broken by that third-party custodian company is real. You can use Paypal to buy cryptocurrency if you don't want to use other platforms but withdraw your cryptocurrency to your non custodial wallets instantly after your deal on Paypal is done.

Did you mean Paypal allow its user to withdraw their fund? IIRC, their platform wasn't allowing any such on-chain transaction. They didn't allow their users to withdraw the fund in form of cryptocurrency.

Yes, that's correct. Currently, PayPal does not allow all their users to withdraw their crypto holdings in the form of an on-chain transaction to a personal wallet. Instead, they allow users to buy and sell cryptocurrency within the PayPal platform, but the actual funds are held by PayPal and not under the control of the user.

The last news I read about this:

08/12/2022 Update: We are pleased to announce that all eligible PayPal account holders in the U.S. can now transfer, send and receive cryptocurrency with PayPal. Download the PayPal app or log in to your account to learn more.

We are thrilled to announce that starting today, PayPal supports the native transfer of cryptocurrencies between PayPal and other wallets and exchanges

But I think this is still valid only for US based users.

I think PayPal users are now allowed to withdraw their crypto to their personal wallets.

Somebody could please confirm this, but I think the announcement mentioned above was about PayPal already adding the feature that allows users to withdraw their cryptocurrency to other wallets. So that must be on-chain transactions that are allowed.

In their site's FAQ, it is also indicated that the option to transfer cryptocurrency out of PayPal is available.

[o_e_l_e_o]

How come such a big institution can't operate its own Cold wallet?

They can, but they don't care. They don't actually care about what is best for their users, otherwise they would let them actually withdraw bitcoin to their own wallets. All PayPal care about is taking a cut of trading fees. Far easier to find some random third party to do all the work for them and just sit as a middle man taking a cut, rather than actually invest in their own infrastructure to do things properly.

There could be a legal aspect to it as well. If PayPal lose "your" bitcoin, then you can sue PayPal directly. If some unknown third party lose "your" bitcoin, then PayPal simply put in a claim against the third party while being able to say "Well, not our fault!", and the customer is the one left out of pocket.

[Rikafip]

However, it appears that many still don't fully grasp the significance of the adage "not your keys, not your coins."

An average PayPal user doesn't care about "not your keys, not your coins", "be your own bank" and everything else that bitcoin stands for. They rather prefer sense of false security because why else would they use a service with such a high fees, other than being "protected" in case they send money to scammers.

PayPal is perfectly aware of that and for that reason they enabled withdrawals to external wallets 6 months ago (afaik still only available for US users) knowing that majority of people will still keep holding crypto on their platform.

[hugeblack]

The company's total financial assets were over $25 billion. Despite offering cryptocurrency services for more than two years, this is the first time PayPal has provided a breakdown of its crypto holdings in its annual financial report.

The answer to this question comes here.

An article on Cointelegraph ^[2] reports that PayPal keeps its customers' cryptocurrencies through the use of a third-party custodian.

 I think that after what happened with Luna and the FTX, there has been a fear and a question from legislators about disclosing reserves and whether the platform is able to fulfill its obligations to clients or not.

I am surprised that the percentage is close to 2.5%, which is something that if most companies did, we would see big changes.

[SFR10]

unnamed third party

Looks like it's Paxos ^{["dkbit98" mentioned their name with regard to another issue]}: How Paxos Works with PayPal to Build Innovative Crypto Products
^{- They're claiming that they're "holding user assets in bankruptcy-remote accounts and it comes with digital asset insurance", but I couldn't find any useful information about the insured part.}

[mk4]

Up to this day it still boggles my mind why of all other cryptocurrencies, PayPal decided to add freakin Litecoin and BitcoinCash. Love em or hate em and call them centralized all you want, but at least BNB, TRX, and SOL are more usefull than both LTC and BCH.

[noorman0]

How come such a big institution can't operate its own Cold wallet?

It is shifting responsibility. Instead of them having to guarantee complete security, why not pass it on to other services dedicated to that purpose. Not to mention if Paypal got a "lucrative" deal with it.

I think PayPal users are now allowed to withdraw their crypto to their personal wallets.

Somebody could please confirm this,

It's true, here's the news.

[o_e_l_e_o]

They're claiming that they're "holding user assets in bankruptcy-remote accounts and it comes with digital asset insurance", but I couldn't find any useful information about the insured part.

So, going through their Terms and Conditions, I found exactly one reference to insurance in relation to crypto (rather than in relation to fiat). Here it is:

Crypto assets are not legal tender, are not backed by the government, and accounts and values are not subject to Federal Deposit Insurance Corporation or Securities Investor Protection Corporation protections.

So, doesn't sound like they are insured at all.

And in regards to their "bankruptcy-remote accounts", here is another quote:

All crypto assets transferred to us by Members for use in trading on the Exchange are deposited by the Exchange into, and are held in, an omnibus client account, controlled by the Exchange. The Exchange enables Members to offer a trade at a given price, or to accept a trade at a price that another Member has offered. When the Exchange matches orders of its users (i.e., a Member accepts a trade offered by another Member), a trade occurs. This trade transfers ownership between users and is reflected in adjustments to Members’ fiat currency and crypto asset balances on our ledger. All trading activity on the Exchange is “off-chain” and is not broadcast to the applicable blockchain.  

So any crypto is held in an "omnibus" account, and if you make a trade, all that is updated is your balance on Paxos' internal systems. Which is obviously the complete opposite to holding everyone's funds in separate "bankruptcy-remote" accounts, whatever that is supposed to mean.

This is the exact same behavior we saw with FTX, BlockFi, Celsius, Voyager, etc. Claim in big letters on their main pages and all over social media that all funds are safe, insured, protected, collateralized, whatever, while their Terms of Service reveal that actually that is all complete lies and your coins are being spent and gambled.

Love em or hate em and call them centralized all you want, but at least BNB, TRX, and SOL are more usefull than both LTC and BCH.

I don't own any LTC, but at least they are making interesting developments with mimblewimble. The other 4 you have listed there are outright scams as far as I am concerned.

[mk4]

I don't own any LTC, but at least they are making interesting developments with mimblewimble. The other 4 you have listed there are outright scams as far as I am concerned.

I wouldn't disagree if you'd say that they're very bad investments(wouldn't necessarily agree as a scam), but the fact that you can move USDT/USDC using their networks makes them at least somewhat useful networks in my book.

[o_e_l_e_o]

I wouldn't disagree if you'd say that they're very bad investments(wouldn't necessarily agree as a scam), but the fact that you can move USDT/USDC using their networks makes them at least somewhat useful networks in my book.

I think stablecoins are scams as well. Centralized, not fully backed up or collateralized, printed out of thin air, can be arbitrarily frozen or seized, have collapsed literally overnight... Worse than fiat!

[NotATether]

Is Paypal one of those platforms that has been giving interest to users for holding crypto on their own site? Hopefully not, as they should know better as to what has been happening to those kinds of services over the last few months.

How come such a big institution can't operate its own Cold wallet?

They can, but they don't care. They don't actually care about what is best for their users, otherwise they would let them actually withdraw bitcoin to their own wallets. All PayPal care about is taking a cut of trading fees. Far easier to find some random third party to do all the work for them and just sit as a middle man taking a cut, rather than actually invest in their own infrastructure to do things properly.

There could be a legal aspect to it as well. If PayPal lose "your" bitcoin, then you can sue PayPal directly. If some unknown third party lose "your" bitcoin, then PayPal simply put in a claim against the third party while being able to say "Well, not our fault!", and the customer is the one left out of pocket.

We all know how this is going to end.

"Chill out until the next crypto winter"

If custodian go bankrupt, Paypal will be in big trouble with the Feds.

[Rikafip]

I think stablecoins are scams as well. Centralized, not fully backed up or collateralized, printed out of thin air, can be arbitrarily frozen or seized, have collapsed literally overnight... Worse than fiat!

Speaking of stablecoins, PayPal plans/planned to join the circus and issue their own but since their partner Paxos has problems with SEC as of lately (forcing them to stop minting BUSD and pressing charges) that will probably be put on hold.

Is Paypal one of those platforms that has been giving interest to users for holding crypto on their own site?

Nope, they didn't offer that.

[NotATether]

I think stablecoins are scams as well. Centralized, not fully backed up or collateralized, printed out of thin air, can be arbitrarily frozen or seized, have collapsed literally overnight... Worse than fiat!

Speaking of stablecoins, PayPal plans/planned to join the circus and issue their own but since their partner Paxos has problems with SEC as of lately (forcing them to stop minting BUSD and pressing charges) that will probably be put on hold.

Oh please. That is probably the dumbest thing that they could do right now, in light of all the controversy about how other stablecoin issuers don't have sufficient backing. Unless Paypal plans to put some of their stock or earnings on the line, I cannot see this happening at all (besides it would only be available on like Coinbase considering Paypal won't let just any exchange list it).

Is Paypal one of those platforms that has been giving interest to users for holding crypto on their own site?

Nope, they didn't offer that.

Good. One less thing for customers to worry about at night.