PayPal Holdings Inc is introducing a stablecoin, which is the first one created by a large financial company. This development could significantly enhance the slow adoption of digital tokens for payments. PayPal USD (PYUSD) is issued by Paxos Trust Co and is fully backed by US dollar deposits, short-term Treasuries, and similar cash equivalents. The stablecoin is pegged to the dollar and will gradually become available to PayPal’s customers in the US.
With PYUSD, CEO Dan Schulman aims to solidify PayPal’s dominance in digital payments by utilizing technology that enables instant and lower-cost transfers without the need for a central intermediary. Over the past 12 months, PayPal shares have experienced a 33% drop, making it the sixth-worst performer on the Nasdaq 100 Index, as the surge in online payments during the pandemic has subsided.
Schulman stated in an interview, “The vision over time is that this becomes a part of the overall payments infrastructure.” Stablecoins, which are crypto tokens pegged to an asset like the dollar, have been in existence for nearly a decade, but they are mostly used by traders for moving digital assets between exchanges and have had limited success in consumer payments. According to CoinGecko, there is approximately $126 billion worth of stablecoins in circulation, with Tether Holdings Ltd’s USDT being the largest.
There have been some controversial stablecoin projects, such as Meta Inc.’s failed attempt last year due to regulatory backlash. PayPal itself paused its work on PYUSD in February due to increased regulatory scrutiny of cryptocurrencies. However, the company now believes that the regulatory environment is progressing towards more clarity and sees growing demand for an alternative stablecoin due to the concentrated market.
The House Financial Services Committee recently advanced a bill to regulate crypto stablecoins, which has been supported by Patrick McHenry, a Republican from North Carolina. McHenry remarked, “Clear regulations and robust consumer protections are essential to enabling stablecoins to achieve their full potential.”
PYUSD is designed to be redeemable for dollars at all times and can also be exchanged for other cryptocurrencies available on PayPal’s network. It can be used to fund purchases and will soon be accessible on PayPal’s popular payments app Venmo. Users will eventually be able to transfer their token holdings between a PayPal and a Venmo wallet. Additionally, the coin can be moved to compatible third-party wallets outside the PayPal network.
Last year, PayPal launched its cryptocurrency services, allowing users to buy, sell, and make payments in several tokens like Bitcoin through its platform. The company has expanded the services it offers to consumers and merchants, including working-capital loans and remittances. PayPal shares rose by as much as 1.6% in early trading on Monday.
Initially, PayPal expects PYUSD to be primarily used in the cryptocurrency and web3 sectors, such as trading in and out of other digital tokens and in-game payments, before gradually being adopted in areas like remittances and micro-payments. While stablecoins have been praised for their ability to facilitate cheap and instant money transfers and payments, they have also faced opposition from central banks that are developing their own digital currencies and concerns about the quality of reserves.
In May 2022, one stablecoin called TerraUSD imploded when its complex algorithmic system failed, causing a wider crash in cryptocurrencies. The creator of TerraUSD, South Korean citizen Do Kwon, has been charged with fraud by US prosecutors, resulting in roughly $40 billion in losses for investors. Agustin Carstens, the head of the Bank for International Settlements, expressed doubts about the ability of stablecoins to function as money, stating, “Stablecoins must import their credibility from sovereign fiat currencies.”
In February, the New York State Department of Financial Services directed Paxos to stop issuing a stablecoin known as BUSD, which was branded by crypto exchange Binance, due to unresolved issues related to Paxos’s oversight of its relationship with Binance. Paxos is subject to regulatory oversight by NYDFS, and PYUSD will be a regulated product in the state of New York. PayPal obtained a local crypto license from the regulator in June last year. Schulman revealed that PayPal engaged in extensive discussions with US regulators and policymakers before introducing PYUSD.
Starting in September, Paxos will publish monthly reports detailing the assets backing PYUSD, and a third-party attestation by an accounting firm on PYUSD’s reserve assets will also be published.
With PYUSD, CEO Dan Schulman aims to solidify PayPal’s dominance in digital payments by utilizing technology that enables instant and lower-cost transfers without the need for a central intermediary. Over the past 12 months, PayPal shares have experienced a 33% drop, making it the sixth-worst performer on the Nasdaq 100 Index, as the surge in online payments during the pandemic has subsided.
Schulman stated in an interview, “The vision over time is that this becomes a part of the overall payments infrastructure.” Stablecoins, which are crypto tokens pegged to an asset like the dollar, have been in existence for nearly a decade, but they are mostly used by traders for moving digital assets between exchanges and have had limited success in consumer payments. According to CoinGecko, there is approximately $126 billion worth of stablecoins in circulation, with Tether Holdings Ltd’s USDT being the largest.
There have been some controversial stablecoin projects, such as Meta Inc.’s failed attempt last year due to regulatory backlash. PayPal itself paused its work on PYUSD in February due to increased regulatory scrutiny of cryptocurrencies. However, the company now believes that the regulatory environment is progressing towards more clarity and sees growing demand for an alternative stablecoin due to the concentrated market.
The House Financial Services Committee recently advanced a bill to regulate crypto stablecoins, which has been supported by Patrick McHenry, a Republican from North Carolina. McHenry remarked, “Clear regulations and robust consumer protections are essential to enabling stablecoins to achieve their full potential.”
PYUSD is designed to be redeemable for dollars at all times and can also be exchanged for other cryptocurrencies available on PayPal’s network. It can be used to fund purchases and will soon be accessible on PayPal’s popular payments app Venmo. Users will eventually be able to transfer their token holdings between a PayPal and a Venmo wallet. Additionally, the coin can be moved to compatible third-party wallets outside the PayPal network.
Last year, PayPal launched its cryptocurrency services, allowing users to buy, sell, and make payments in several tokens like Bitcoin through its platform. The company has expanded the services it offers to consumers and merchants, including working-capital loans and remittances. PayPal shares rose by as much as 1.6% in early trading on Monday.
Initially, PayPal expects PYUSD to be primarily used in the cryptocurrency and web3 sectors, such as trading in and out of other digital tokens and in-game payments, before gradually being adopted in areas like remittances and micro-payments. While stablecoins have been praised for their ability to facilitate cheap and instant money transfers and payments, they have also faced opposition from central banks that are developing their own digital currencies and concerns about the quality of reserves.
In May 2022, one stablecoin called TerraUSD imploded when its complex algorithmic system failed, causing a wider crash in cryptocurrencies. The creator of TerraUSD, South Korean citizen Do Kwon, has been charged with fraud by US prosecutors, resulting in roughly $40 billion in losses for investors. Agustin Carstens, the head of the Bank for International Settlements, expressed doubts about the ability of stablecoins to function as money, stating, “Stablecoins must import their credibility from sovereign fiat currencies.”
In February, the New York State Department of Financial Services directed Paxos to stop issuing a stablecoin known as BUSD, which was branded by crypto exchange Binance, due to unresolved issues related to Paxos’s oversight of its relationship with Binance. Paxos is subject to regulatory oversight by NYDFS, and PYUSD will be a regulated product in the state of New York. PayPal obtained a local crypto license from the regulator in June last year. Schulman revealed that PayPal engaged in extensive discussions with US regulators and policymakers before introducing PYUSD.
Starting in September, Paxos will publish monthly reports detailing the assets backing PYUSD, and a third-party attestation by an accounting firm on PYUSD’s reserve assets will also be published.
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