Paxos, the issuer of PayPal’s (NASDAQ: $PYPL) stablecoin PYUSD (CRYPTO: $PYUSD), has acknowledged a major error that resulted in the accidental minting of $300 trillion worth of the dollar-pegged token on the Ethereum (CRYPTO: $ETH) blockchain. The minting, which took place on Wednesday at 3:12 PM EST, is more than twice the global GDP and 125 times more than the total amount of US dollars in circulation.
Paxos explained that the event was due to an internal technical glitch and affirmed that no security breach had occurred. The company reassured the community that customer funds were safe.
https://twitter.com/Paxos/status/1978565015943950411
Blockchain data showed the minting was part of a routine internal transfer. However, the resulting overminting triggered a wave of confusion and fear in the crypto community. The scale of the mint raised issues on the integrity of dollar-pegged stablecoins and whether they are actually backed 1:1 by fiat currency. As a precaution, DeFi platforms like Aave had to freeze their PYUSD markets for a period of time until the situation was clarified.
On-chain analytics platforms were quick to pick up the mint and burn sequence, which only added to concerns. Some critics took to social media and questioned whether such large minting errors could be backed by sufficient collateralization. One prominent user highlighted the lack of support between the mint amount and the lack of support for a $300 trillion mint. Even if a $300 trillion mint is accidental, it is not supported logically by the dollar-pegged token’s backing.
Paxos’ Clarification and Reversal of Minting
PayPal’s head of the blockchain division, Omer Goldberg, reassured users that the PYUSD token remains fully backed by U.S. dollars. The mistake was promptly corrected, and no net expansion in the circulating supply was actually caused. Paxos affirmed that the excessive minting was reversed and the issue was solved without impacting the token’s peg or circulation.
Even though the incident was quickly resolved, it sparked widespread concern about the operational security of stablecoin systems. This $300 trillion mistake is not without precedent in the crypto industry, since Tether slipped up by minting $5 billion USDT in 2019, and it was corrected almost immediately.
Industry Leaders Call for Proof of Reserves
In response to the incident, industry experts raised the importance of Proof of Reserves (PoR) mechanisms in stablecoin operations. Zach Rynes, a liaison for Chainlink, emphasized that had PoR been in place, the mistake could have been prevented.
He proposed integrating Chainlink PoR into minting functions to ensure tokens are only minted if sufficient collateral exists off-chain to back them. This would act as a real-time validation step to prevent such incidents from occurring in the future. Rynes’ remarks sparked debate in the community, with some suggesting that PoR validation should be a mandatory practice for regulated stablecoins.
Additionally, Gnosis founder Martin Koeppelmann questioned the accidental mint, pointing to further stricter automated checks in smart contract operations. This move would help safeguard against unbacked minting, protecting the stability of the broader crypto ecosystem.
