PayPal Launches Dollar-Backed Stablecoin, Based on Ethereum
Dear Investors,
PayPal, the global payments giant, has launched its very own U.S. dollar-pegged stablecoin, PYUSD. This strategic move arrives as PayPal endeavors to rejuvenate its growth trajectory into cryptocurrencies and tackle prevailing challenges in the payments landscape.
With a staggering 426 million active accounts and an impressive annual transaction volume of $1.2 trillion, PayPal has witnessed remarkable expansion over the years. Yet, its growth momentum has experienced a recent slowdown, prompting the company to seek a new solution. The introduction of the stablecoin initiative appears to be their answer, promising to curtail transaction-associated costs and combat payment fraud.
At the heart of this initiative is PYUSD, a stablecoin engineered to offer significant cost-saving benefits for PayPal. By harnessing the stability of fiat currencies, stablecoins have the potential to streamline cross-border transactions, fostering a secure environment for users and merchants. This advantage stems from their ability to mitigate the volatility risks inherently tied to traditional cryptocurrencies. Moreover, stablecoins exhibit the capacity to fortify security against counterfeiting, ensuring the integrity and reliability of transactions.
How do stablecoins play with e-commerce?
Of particular interest is the potential reintegration of PYUSD into the vast eCommerce ecosystem through eBay. Despite eBay's acquisition and subsequent spin-off of PayPal, a substantial 70% of eBay transactions still traverse the PayPal channel. Given the inception of PYUSD, eBay's retail sector now stands at the cusp of renewed exposure to the world of cryptocurrencies.
This potential union could be game-changing, considering eBay's colossal presence with 134 million users, 1.7 billion listings, and an astounding $74 billion in sales volume. The forecasted utilization of PayPal Stablecoins in 70% of eBay's sales could potentially translate to an astronomical $51.8 billion in value. This prospect underscores the considerable room for expansion and cryptocurrency adoption within the eCommerce arena.
What is the PYUSD backed by?
Key to the stability and functionality of PYUSD is its Ethereum-based architecture, backed by U.S. dollar deposits, short-term Treasuries, and analogous cash equivalents. This robust backing mechanism ensures that PYUSD's value remains pegged to the U.S. dollar, imbuing it with the desired stability. Users are poised to effortlessly transfer PYUSD between PayPal and compatible external digital wallets, deploying the tokens for transactions or even exchanging them for other cryptocurrencies available on PayPal's network.
The issuance of PYUSD rests in the capable hands of New York-based crypto financial-services firm, Paxos Trust. Paxos' standing and expertise in the cryptocurrency realm lend credibility to PayPal's foray into the stablecoin landscape. Addressing concerns about unbacked tokens, PayPal has committed to providing attested reports that verify the funds underpinning PYUSD. This transparency initiative involves Paxos publishing monthly reserve reports and third-party attestations, adhering to industry standards.
What regulatory challenges lie ahead?
Nonetheless, the journey ahead is not devoid of challenges. Regulatory scrutiny initially prompted PayPal to halt work on its stablecoin venture. However, the launch signifies a potential paradigm shift towards a more defined regulatory framework for stablecoins. Navigating regulatory compliance remains pivotal for PayPal to ensure a seamless integration of PYUSD into its suite of services.
A noteworthy challenge is the emergence of impersonators and scammers attempting to capitalize on PYUSD's introduction. To counter this menace, PayPal has underscored that authentic PYUSD tokens can solely be transacted between verified PayPal accounts and compatible wallets, making it arduous for these mimics to pass as genuine.
What does this mean for crypto as a whole?
In tandem with the potential green light for a Bitcoin Spot ETF, this recent announcement reverberates as a resounding bullish signal across the market. Paypal's emergence could herald the mainstream gateway into the realm of cryptocurrencies that the community has long awaited, serving as the essential conduit for the next influx of users to step into this dynamic space.
"The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the U.S. dollar," PayPal CEO Dan Schulman said in the statement. "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."
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Thank you for reading this week’s edition of the Myth of Money.🚀
Until next week,
Tatiana Koffman
About the Author: Tatiana Koffman
Hi there and thanks for reading! If you stumble upon my newsletter, you will notice that I write about money, economics, and technology. I hold a JD/MBA and spent my career in Capital Markets working across Mergers & Acquisitions, Derivatives, Venture Capital, and Cryptocurrencies. I write to make financial topics more accessible and create equal opportunity for the next generation of investors. I have personally invested in 20+ companies and funds (👉 my portfolio).