Global payments giant PayPal has launched a US dollar-denominated stablecoin,’ PayPal USD’ (PYUSD). The new stablecoin will be issued by blockchain and digital asset solution provider Paxos Trust Company.
PayPal’s new Paxos-issued stablecoin will be gradually rolled out to eligible PayPal customers in the US. Those who purchase PYUSD will be able to fund purchases with the stablecoin by selecting it at checkout, via PayPal’s Checkout with Crypto feature.
Users will also be able to transfer the stablecoin between PayPal and compatible external wallets; send person-to-person payments using PYUSD and convert any of PayPal’s supported cryptocurrencies to and from PayPal USD.
Reserves for PayPal USD are fully backed by US dollar deposits, US Treasuries and similar cash equivalents. PayPal’s stablecoin can be bought or sold through PayPal at a rate of $1.00 per PayPal USD.
Dan Schulman, president and CEO of PayPal, explained the decision to launch PayPal USD: “The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the US dollar.
“Our commitment to responsible innovation and compliance, and our track record delivering new experiences to our customers, provides the foundation necessary to contribute to the growth of digital payments through PayPal USD.”
Starting September 2023, Paxos will publish a public monthly ‘Reserve Report‘ for PayPal USD, outlining the instruments composing the reserves.
The digital asset firm will also publish a third-party attestation of the value of PayPal USD reserve assets; issued by an independent third-party accounting firm and conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants (AICPA).
PayPal USD “stands a promising chance”
Uldis Tēraudkalns, CEO of Lithuanian fintech Nexpay, the payments infrastructure provider for digital businesses, explained that while PayPal’s move is significant, the success of the stablecoins is far from guaranteed: “The introduction of stablecoins by a prominent player in the payment industry, like PayPal, is undeniably significant.
“Given PayPal’s vast existing customer base and its renowned reputation, PYUSD has the potential to attract a substantial number of first-time crypto users.
“While this move is likely to bolster the appeal of stablecoins among the mainstream audience, its reception within the dedicated crypto community remains uncertain. The success of any stablecoin hinges on the network effect: its utility is directly correlated with its acceptance by merchants and businesses.
“It’s essential for there to be numerous outlets to spend it, making it worthwhile for consumers to retain. This will largely depend on its adoption by wallets, exchanges, and other platforms, as well as the ease of integration via the API. Predicting the coin’s success is challenging at this juncture, but it stands a promising chance.
“The significance of this announcement should not be underestimated”
In its release, PayPal revealed that PYUSD will be released as an ERC-20 token issued on the Ethereum blockchain. As a result, the new stablecoin becomes immediately available to a wide range of external developers, wallets and web3 applications, as well as making it easier for exchanges to adopt.
Mat Peck, CTO at Monavate, the FCA-regulated e-money institution, explained some of the other benefits of ERC-20 to The Fintech Times, and revealed why they could be significant in establishing wider public adoption: PayPal’s decision to release PYUSD on ERC-20 (the more environmentally responsible Ethereum model), fully backed by USD deposits (and equivalent short-term investments) to a global payment ecosystem, is a considerable step forward in demonstrating the benefits offered by stablecoins, without the risks and complexities associated with Web3.
“Their decision to publish details of the reserve every month will ensure confidence remains high that one PYUSD can always be exchanged for one USD, so the need for that redemption will be reduced, and the benefits of almost instant, global settlement of payments for goods and services can be realised.
“Couple that with the ability to spend USD stablecoin through the PayPal network in the same manner as fiat currency, including in real-world transactions through points of sale, then the significance of this announcement should not be underestimated. This could well be the first, global, stablecoin product adopted by the wider public without fear of the underlying technology.”
Stablecoins: the changing world of regulation
As Riccardo Tordera, head of policy and government relations for The Payments Association, explains, global regulation has taken notice of cryptocurrencies and stablecoins alike: “Stablecoins, have been under particular scrutiny due to their potential impact on financial stability and their potential to be used as a medium for illicit activities.
“As a result, it is becoming increasingly clear that stablecoins need to be regulated in a manner similar to e-money, with appropriate safeguards put in place to protect consumers and ensure market stability.”
With this in mind, how much of an impact could PayPal’s new stablecoin have on the space, and what should smaller firms be aware of?
Tony Petrov, chief legal officer of global full-cycle verification platform Sumsub, discussed the ever-changing crypto landscape and how recent developments need to be considered by crypto firms across the globe: “PayPal’s news is a testament to the burgeoning popularity of DeFi.
“This rapid ascent signals a major transformation in the cryptocurrency ecosystem, and the potential impact of stablecoins on the global financial landscape is an exciting development to monitor closely.
“Importantly, the Financial Action Task Force (FATF) now categorises stablecoins as Virtual Assets (VAs) or traditional assets, recognising their increasing impact on the financial sector.
“Consequently, providers of stablecoin-related services must adhere to Anti-Money Laundering (AML) regulations to uphold transparency and accountability standards – in the UK, regulations will come into force from 1 September 2023. Not following this rule could lead to fraud by not detecting suspicious users, fines, and also significant reputational damage to crypto businesses.
“Stablecoins can be liable to the same risks as unpegged cryptocurrencies”
Not all perspectives on the launch are so welcoming, however. One such view comes from Jorge Lesmes, senior banking director at information technology firm NTT DATA in the UK and Ireland, who explains concerns surrounding user protections: “Stablecoins are the logical step for technology giants such as PayPal to enter the currency market, but I still have concerns over their purported stability.
“PayPal’s stablecoin is being issued by Paxos, a regulated blockchain and digital asset supplier, which carries with it an element of risk as consumers’ finances are not protected in the same way they are with a traditional bank.
“Moreover, I question the extent to which the average consumer has been able to internalise this distinction between stablecoins and cryptocurrencies, which of course, are risky due to their inherent volatility.
“From my perspective, PayPal’s move is certainly significant and will likely spur an influx of other technology companies to take a similar route into the payments market, but I do not believe that the widespread adoption of stablecoins is the best way to harness blockchain technology for the benefit of consumers.
“We have seen that stablecoins can be liable to the same risks as unpegged cryptocurrencies in the past – Luna/UST comes to mind – and I would argue central bank digital currencies (CBDCs) are a more sensible and risk-averse way forward.”
PayPal’s move is “curious and telling”
Ralf Zellweger, founder of the Swiss payment startup Centi, also revealed his concerns about the project: “PayPal’s unveiling of a US Dollar Stablecoin, merely a rebranded offering from Paxos, is both curious and telling.
“How can an entity, notorious for its sky-high transaction fees, genuinely champion a technology poised to dismantle the very middlemen that inflate costs?
“This venture threatens to undermine its core business ethos. It’s a glaring disparity that underscores the chasm between pursuing innovation for sheer profit and advancing innovation for tangible progress.
“We challenge everyone to discover the transformative power of a stablecoin, free from the archaic and hefty fee shackles that have long dominated the payment landscape.”
Whether or not the PayPal stablecoin can become a genuine widespread success is yet to be seen, but either way, the launch certainly hasn’t gone unnoticed. The launch may well mark the beginning of a new era for stablecoin adoption and could shake up the landscape regulatory and otherwise, regardless of its success.
