Although a clear regulatory framework for digital assets has yet to be established in the United States, PayPal — one of America’s largest financial t
Although a clear regulatory framework for digital assets has yet to be established in the United States, PayPal — one of America’s largest financial technology companies — announced on Aug. 7 its U.S. dollar-pegged payment stablecoin, PayPal USD (PYUSD).
A PayPal spokesperson told Cointelegraph that PYUSD is important because mainstream adoption of future digital experiences will require a stable digital instrument that is crypto-native and easily connected to fiat. Despite the unclear regulatory environment for digital assets in the U.S., the spokesperson said:
“Our experience tells us that the time is ripe to modernize and upgrade the technological infrastructure of the financial system — and we want to help businesses and consumers adapt and engage. That is why we are launching a PayPal stablecoin, which is designed to eliminate price volatility found in other digital currencies while enabling confident payments.”
The case for PayPal’s ability to affect stablecoin adoption with its new project is strong, as recent statistics show that over 426 million PayPal accounts are currently actively used. The company also has a market share of just over 50% of the global online payment processing arena.
Understanding the potential impact of PYUSD
While it’s certainly notable that PayPal has launched PYUSD, there are several considerations to keep in mind.
Alex Tapscott, the co-founder of the Blockchain Research Institute and a business author, told Cointelegraph that PayPal clearly understands that stablecoins will be foundational to the future of financial services and payments in particular. He said stablecoins have already proven incredibly lucrative as a business:
“It’s no surprise why PayPal and others might want to enter the market. PayPal is currently facing stiffer competition in its legacy payments business and is looking for ways to diversify into higher-margin areas. Stablecoins are a logical fit, and potentially a lucrative one at a time when Tether’s recent earnings report suggests that it’s poised to post a bigger profit than Starbucks, BlackRock — and even PayPal itself.”
However, there are both advantages and disadvantages that will likely arise with PYUSD. One of the most obvious benefits is that PYUSD may help onboard mainstream users to the Web3 space.
“The biggest advantage of PYUSD is that it is more likely to get integrated into our digital economy as a payments tool that everyday people can use,” said Tapscott.
To put this in perspective, Pegah Soltani, head of payments products at Ripple, told Cointelegraph that stablecoins serve as a mechanism to tokenize fiat currencies, like the U.S. dollar.
“By tokenizing a real-world asset — in this instance, fiat — stablecoins serve to expand the crypto ecosystem because these assets allow the trades or payments in the crypto economy to tie back to fiat,” she said.
However, Soltani noted that PayPal being a closed payments ecosystem may only improve efficiencies for itself: “This may not be groundbreaking for consumers who already experience relatively low fees and fast transaction times when transacting within the PayPal ecosystem of applications.”
On the flip side, Soltani said that if PayPal incentivizes its users to use PYUSD outside of its own ecosystem, it’s possible that the stablecoin will gain more market share relatively quickly. Although PYUSD just recently launched, some global cryptocurrency exchanges, like Changelly, have stated that they will list it.
It’s also important to note that millions of users trust PayPal for financial transactions. Soltani mentioned that one of the potential pitfalls of a stablecoin is that it’s not a trustless system.
“It requires the purchaser to trust the issuer to ensure that their money is actually being backed 1:1. Because PayPal is a well-known brand name, there’s potential for more perceived trust for those who are entering this space for the first time,” she explained.
While all these aspects are noteworthy, it shouldn’t come as a surprise that one of the biggest concerns surrounding PYUSD is the lack of regulatory clarity for digital assets in the United States.
“PayPal chose a very interesting time to launch a stablecoin, given the lack of regulatory clarity around crypto and the challenges that presents for the entire crypto space,” said Soltani.
The issuance and custody of PYUSD are handled by Paxos, a qualified custodian regulated by the New York State Department of Financial Services. Margaret Rosenfeld, chief legal officer at Cube Exchange — a digital asset exchange set to launch in Australia — told Cointelegraph this means the assets are required to be held in a bankruptcy-remote trust, in fully segregated accounts. “Paxos, not PayPal, is holding the assets backing the stablecoin,” she said.
Today, we’re unveiling a new stablecoin, PayPal USD (PYUSD). It’s designed for payments and is backed by highly liquid and secure assets….
cointelegraph.com
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