PayPal’s New Stablecoin
Introduction
Global adoption of cryptocurrency has been on the rise for years, but it’s still not used widely in most countries for a variety of reasons, such as volatility and the potential for fraud. With the recent launch of PayPal USD (PYUSD), PayPal has taken a step towards improving widespread adoption of crypto.
How does it work?
PYUSD is a stablecoin, a cryptocurrency designed to maintain a stable value. PYUSD is always worth $1 because it’s backed by US dollar reserves. In other words, for every 1 PYUSD in circulation, there is a corresponding US dollar in real life that PayPal owns. This system means that anyone can redeem 1 PYUSD for 1 dollar if they want to. PYUSD can be bought through the PayPal and Venmo apps, and it’s also traded on exchanges such as Coinbase.
PYUSD isn’t exactly revolutionary as far as its technology goes. It runs on the Ethereum blockchain and adheres to the ERC-20 standard, which is a very commonly used set of guidelines for creating a cryptocurrency. It’s also far from the first dollar-backed stablecoin; in fact, some of the largest stablecoins on the market right now are supported by the US dollar. However, it is set apart from most other cryptos by a couple of key advantages:
PayPal is already a prominent payment system outside of the crypto world—it has existed for more than 20 years and is trusted by hundreds of millions of users. As a result, people unfamiliar with crypto are more likely to trust and buy PayPal USD.
PayPal USD is fully regulated by the New York State Department of Financial Services. Most other crypto (including Tether, a major stablecoin competitor) is currently unregulated for the most part. Investors in unregulated crypto aren’t protected from scams and fraud, but this is a problem that PYUSD holders don’t need to worry about.
Why was PYUSD created?
Crypto has several advantages over traditional fiat currency. One of these benefits is that when two people carry out a transaction with crypto, there is no need for the facilitation of a middleman—the payment is processed instantly by a network of computers. In contrast, paying somebody the traditional way means transferring money through a bank, which can take a long time. PayPal makes these bank transfers much faster and takes a tiny cut of every transaction made. Because of this, it is possible that PayPal will lose a lot of its revenue if crypto becomes more prominent in the future. However, by jumping into the crypto scene themselves, they are keeping up with current technology and ensuring that they stay competitive.
What are the implications?
PayPal is working with another major financial company, Paxos Trust Ltd., to issue their crypto, and both lend credibility to the new currency through their strong reputations. PayPal is the first major financial company in the US to launch its own crypto, so it could speed up the adoption of crypto in the coming years as other companies follow suit.
A few years ago, Meta tried to launch their own cryptocurrency called Libra, but shut down after failing to get approval from the US government. The project failed largely because regulators didn’t have much trust in the company and had little knowledge about cryptocurrency at the time. Now, PayPal seems to have succeeded where Meta didn’t, although the popularity of PYUSD with everyday consumers remains to be seen.