PayPal Holdings Inc., a leading digital payments company, has announced the launch of its own stablecoin called PayPal USD (PYUSD). This move makes PayPal the first major financial firm to offer a digital token. The stablecoin is issued by Paxos Trust Co. and is fully backed by U.S. dollar deposits, short-term Treasuries, and similar cash equivalents. It is pegged to the dollar and will be gradually made available to PayPal’s customers in the United States.
Through the introduction of PYUSD, PayPal aims to solidify its position as a dominant player in the digital payments industry by leveraging technology that enables instant and low-cost transfers without the need for a central intermediary. This development comes as PayPal’s shares have seen a decline of 33% over the past year, partially due to the easing of the pandemic-driven surge in online payments.
PayPal’s CEO, Dan Schulman, expressed his vision for PYUSD, stating that it is intended to become an integral part of the overall payments infrastructure. Schulman, who is preparing to step down in the coming months, believes that the regulatory environment is moving towards greater clarity, making it the right time to introduce an alternative stablecoin.
Stablecoins, which are crypto tokens pegged to an asset like the dollar, have been in existence for nearly a decade. However, their usage has mostly been limited to traders for moving digital assets between exchanges, with minimal impact on consumer payments. Currently, there is an estimated $126 billion worth of stablecoins in circulation, with Tether Holdings Ltd.’s USDT being the largest.
PYUSD is designed to be redeemable for dollars at any time and can also be exchanged for other cryptocurrencies available on PayPal’s network. It will soon be accessible on PayPal’s popular payments app Venmo, allowing users to fund purchases using the stablecoin. In addition, users will have the ability to transfer their token holdings between a PayPal and a Venmo wallet. The coin can also be moved to compatible third-party wallets outside of the PayPal network.
Having entered the cryptocurrency services market in 2020, PayPal has progressively expanded its offerings. The company enables users to buy, sell, and make payments using a select few tokens such as Bitcoin.
While stablecoins have been touted as a superior means of facilitating cheap and instant money transfers and payments, they have faced opposition from central banks, which are actively developing their own digital currencies. Concerns have also been raised regarding the quality of reserves held by stablecoin issuers. A notable setback for stablecoins occurred in May 2022 when TerraUSD collapsed due to the failure of its underlying algorithmic system, leading to a broader crash in cryptocurrencies.
Acknowledging the potential of stablecoins, the House Financial Services Committee recently advanced a bill to regulate them, championed by Patrick McHenry, a Republican from North Carolina. McHenry believes that stablecoins hold promise for payment systems if they operate under a clear regulatory framework with robust consumer protections.
PayPal’s foray into the stablecoin market with PYUSD marks a significant development in the digital payments landscape. With its widespread user base and the potential for integrating the stablecoin across its platforms, PayPal aims to consolidate its position as a leader in the industry and adapt to the growing demand for digital payment solutions.
