Paxos just accidentally created more digital dollars than exist in the entire global economy. The blockchain partner behind PayPal's PYUSD stablecoin mistakenly minted $300 trillion worth of tokens Wednesday morning before frantically burning the excess 20 minutes later, exposing a critical flaw in how supposedly "backed" cryptocurrencies actually work.
The crypto world woke up to an impossible number Wednesday morning. Paxos, the regulated blockchain infrastructure company that issues PayPal's PYUSD stablecoin, had somehow created $300 trillion worth of digital tokens - more than double the entire world's GDP.
Crypto sleuths spotted the massive injection first on Etherscan, Ethereum's block explorer, where transaction records showed the mind-boggling mint in real time. The error sent shockwaves through the stablecoin community, which has built its entire value proposition on the promise that every token is backed 1:1 by real dollars.
"This was an internal technical error. There is no security breach. Customer funds are safe. We have addressed the root cause," Paxos announced in a hasty social media statement. The company quickly burned the excess tokens, with blockchain records showing the cleanup happening within 20 minutes.
Behind the scenes, this was exactly the kind of nightmare scenario that keeps crypto executives up at night. PYUSD markets $2.6 billion worth of tokens as being "fully backed by U.S. dollar deposits, U.S. treasuries and similar cash equivalents," according to PayPal's official documentation. The company promises every token can be redeemed for actual dollars on a 1:1 basis.
But Wednesday's glitch revealed the uncomfortable truth lurking beneath stablecoin operations: the minting process operates independently from the backing mechanism. While Paxos publishes monthly attestation reports from independent auditors confirming they hold enough reserves, the smart contracts that actually create new tokens don't automatically check those balances.
The implications are staggering when you run the numbers. There's roughly $2.3 trillion in physical U.S. currency circulating globally, according to Federal Reserve data. Paxos briefly created tokens worth 130 times that amount. Even if you include all bank deposits, government bonds, and liquid assets in the entire American financial system, you'd struggle to find $300 trillion worth of backing.
