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PayPal Enters Crypto Space With New US Dollar-Backed Stablecoin

August 8, 2023 , min read

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Global payments giant PayPal has announced its entry into the cryptocurrency market with the launch of its own stablecoin, PayPal USD (PYUSD). The move marks a major milestone for the adoption of digital assets by mainstream financial institutions. 

According to a press release by the company, PayPal USD will be pegged 1:1 to the US dollar and fully backed by cash reserves. The stablecoin is being issued in partnership with Paxos Trust Company, a regulated blockchain infrastructure platform. 

PYUSD aims to harness the potential of stablecoins for cheaper, faster payments and transfers. The token is designed for use by consumers, merchants, and developers to facilitate seamless transactions between fiat and digital currencies.

Dan Schulman, President and CEO of PayPal, stated:

“The shift towards digital currencies requires a stable instrument that can be easily tied both digitally to local and fiat currencies such as the US dollar. Our commitment to responsible innovation and compliance, and our track record in delivering new experiences to our customers, provide the necessary foundation to contribute to the growth of digital payments through PayPal USD.”

How Will PayPal USD Work (PYUSD)?

According to PayPal, PYUSD has been launched as an Ethereum-based ERC-20 token, allowing integration with a vast ecosystem of wallets, apps, and exchanges in the crypto space. 

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The stablecoin will be made available over the coming weeks to PayPal’s US customers, who can then:

  • Transfer PYUSD between PayPal wallets and external crypto wallets
  • Use it for direct peer-to-peer payments 
  • Select PYUSD at checkout to make purchases
  • Swap the token for other cryptos offered on PayPal such as Bitcoin

The company emphasized that users will be able to redeem PYUSD for US dollars at a 1:1 ratio at any time. Reserves backing the stablecoin will include bank deposits, US Treasuries, and similar liquid assets to maintain the peg.

Mainstream Adoption of Digital Assets

paypal logo on blue background

The launch of PayPal USD comes amidst growing interest from mainstream financial companies in leveraging blockchain technology and digital assets. 

In 2021, Visa announced plans to settle transactions on its payment network using USD Coin (USDC), a popular stablecoin. And in 2019, Facebook proposed its own stablecoin Diem, but the project was later sold off due to regulatory concerns.

PayPal has been expanding its crypto services over the past two years, allowing users to buy, sell, and hold Bitcoin and other major cryptocurrencies. The adoption of its own stablecoin is seen as the next logical step to bridge digital and traditional finance. 

Responding to the news, Congressman Patrick McHenry, House Financial Services Committee Chair, commented: “PayPal’s announcement signals that stablecoins hold promise as a pillar of our 21st century payments system. We are currently at a crossroads to keep America at the forefront of digital asset innovation.”

The stablecoin space has exploded in recent years, with the market cap for all dollar-pegged tokens exceeding $160 billion. The largest by far is Tether’s USDT, making up nearly 80% of the total supply. PayPal USD aims to grab a share of this booming market. 

Regulatory Concerns  

PayPal is among the first major payment companies in the US to introduce its own stablecoin. The move comes despite an ambiguous regulatory environment for cryptocurrencies in the country.

Last month, the US House Financial Services Committee advanced a bill to establish a regulatory framework for stablecoins. While proponents argue that the legislation will provide clearer rules, critics say it could stifle innovation.

The EU has also approved a comprehensive set of rules for digital assets, including stablecoins, set to come into effect by 2024. The bloc's Markets in Crypto-Assets (MiCA) regulations will provide standards for stablecoin issuers and service providers.

PayPal states that its commitment to responsible innovation and compliance provides the foundation for PayPal USD. But the company’s foray into stablecoins will likely face scrutiny from lawmakers and financial watchdogs.

A Major Milestone for Crypto Adoption

paypal crypto

Nonetheless, the launch of PayPal USD represents a watershed moment for the adoption of digital currencies by mainstream finance. As one of the largest payments processors worldwide, PayPal’s endorsement of stablecoins reinforces their potential for global commerce.

Paxos CEO Charles Cascarilla commented: “With the launch of the first stablecoin by a leading financial institution, PayPal and Paxos are proving the real-world value of blockchain technology. PayPal USD is the most significant leap forward for digital assets and the financial industry and Paxos is proud to enable this transformative product.”

With over 430 million active accounts, PayPal possesses enormous reach. Its large customer base can significantly accelerate real-world stablecoin usage for online and in-store payments and transfers. 

As blockchain technology matures and crypto gains broader acceptance, PayPal is positioned in the vanguard of financial institutions embracing digital assets. The company’s innovation may presage a greater integration of digital currencies into the global financial system.

About the author 

Gordon Frayne

Gordon is a seasoned Bitcoin and cryptocurrency expert with over 5 years of experience. He is the owner and operator of Cryptosuss, a dedicated publication for Bitcoin and crypto content. He is also the author of "The Rise of Bitcoin," a thought-provoking exploration of Bitcoin and the larger cryptocurrency ecosystem. Gordon's deep understanding and passion for this industry shine through every aspect of his work.

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