Generally good advice when considering PayPal is to recite to yourself &quot;PayPal is not a bank, PayPal is not a bank, ...&quot;<p>But they do like money, and they like to move it around creatively and create ways to use other people&#x27;s money to make money for them.<p>One of the reasons they aren&#x27;t a bank is they don&#x27;t do (and are not allowed to do AFAICT) fractional reserve lending. In that sort of scenario this story makes a lot of sense, you freeze(or seize) assets from your customers, and then loan them out to other customers who pay you interest on repaying that loan, and if they default you presumably keep the other customer&#x27;s money to cover that &quot;loss&quot;. Sort of 100% reserve banking.