> If they are found to be below a certain ratio of the actual BTC denominated liability, they may run into quite a bit of trouble.
I highly doubt PayPal is playing that game. Bitcoin is highly volatile and can x10 its price easily. That could bankrupt PayPal overnight if people tried to sell in the short-squeeze.
I would prefer it if I didn't have to trust paypal word, and could cryptographically verify their fractional ratio - because in case of a boom, if everybody wanted to get their promises riches, that could also bankrupt paypal overnight.
Actually, the SEC may also want to check whether paypal promissory notes are actually backed by anything but thin air.
If they are found to be below a certain ratio of the actual BTC denominated liability, they may run into quite a bit of trouble.
As a matter of fact, if they were playing it straight they could cryptographically demonstrate actual ownership of the underlying.
They will - of course - never do that. That'd be missing out on one hell of an opportunity to play bookie in the BTC sphere.