Global payment processing giant PayPal announced its United States dollar-pegged payment stablecoin called PayPal USD (PYUSD) on Aug. 7.
The stablecoin is developed on Ethereum (ERC-20) and will be issued by Paxos Trust Co. PYUSD is reportedly fully backed by U.S. dollar deposits, short-term Treasurys and similar cash equivalents.
PayPal said that the launch showcases the company’s focus on becoming a crypto payment giant and aims to make the stablecoin a key part of its payment infrastructure. PYUSD is currently being rolled out for selected customers in the United States.
The payment technology firm first confirmed its plan to launch a stablecoin in January 2022, nearly two years after it had made way for users in the U.S. and the United Kingdom to buy, sell and store cryptocurrencies in their PayPal accounts.
PYUSD will be primarily used for remittances as well as a mode of payment for millions of PayPal merchants. The firm noted that the new stablecoin will be made available on Venmo in the near future, where users will be able to transfer it between the two platforms. The stablecoin will also be transferable with wallets that support PYUSD, such as Coinbase Wallet and MetaMask.
Another stablecoin enters the market
The crypto stablecoin market cap is $125 billion at the moment, primarily dominated by two players — Tether (USDT) with a $86.5-billion market capitalization followed by Circle-issued USD Coin (USDC) with a $26-billion market cap. The rest of the market share is taken up by the likes of Binance-supported stablecoins such as Binance USD (BUSD), TruUSD (TUSD) and a few others. While there are several stablecoins players in the market, PayPal’s stablecoin will be the first issued by a major payment processor.
The launch of PYUSD was welcomed by most of the current stablecoin market leaders, including Tether chief technology officer Paolo Ardoino, who told Cointelegraph that the new PayPal stablecoin will lead to healthy competition and offer users a wider choice, adding:
“We all have the shared goal of driving stablecoin adoption and innovation, and competition leads to the development of solutions that enhance the overall ecosystem. Each project strives to differentiate itself by providing unique benefits to users, driving innovation and providing users with more choices and control over their transactions. Fostering competition allows a healthy and diverse market environment.”
Centralization and “freeze” function controversy
Stablecoins were initially created in the crypto market as an on-ramp method allowing users to get access to a wide range of crypto assets. However, the role of stablecoins has since expanded, with many of them now acting as key liquidity providers for exchanges as well as hedge assets during tumultuous market conditions.
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The PYUSD launch was widely celebrated as a net positive for the crypto industry but came with its fair share of controversy.
Crypto Twitter was quick to critize the centralized structure of PYUSD, which — among other things — allows the owner to to pause transfers and freeze addresses and also allows admins to increase the stablecoin’s total supply.
So the PayPal stablecoin contract:
– Is written in an extremely old version of Solidity
– Allows the owner to pause all transfers
– Allows the owner to freeze addresses to prevent actions
– Allows admins to increase the total supply at willCentralized, but transparent at least. pic.twitter.com/VJ3Jgj1SJ3
— cygaar (@0xCygaar) August 7, 2023
Although the code repository became a hot topic on social media platforms, many other market-leading stablecoins, be they Tether or USD Coin, all have similar features encoded in their system. These very same controversial features have often been used by other stablecoin issuers to freeze the funds of scammers and hackers.
Kene Ezeji-Okoye, co-founder of digital infrastructure firm Millicent Labs, told Cointelegraph that such centralized features are required for any stablecoin to be regulated. He noted that PYUSD is issued by Paxos, which holds New York state’s difficult-to-obtain BitLicense and has issued its own stablecoin. He said:
“The beauty of crypto is that anyone can choose which type of assets they want to use, but given that 94% of all stablecoins are centralized, the market has given its view as to the model most people think is safest.”
Michael Quintanilla, director of Web3 and blockchain software firm SoftServ, believes that PayPal’s ability to modify PYUSD balances is critical for regulatory and operational purposes.
He told Cointelegraph that there are various instances where these aspects come in handy: “For instance, should an account engage in illicit activities, PayPal may need to legally adjust or freeze its funds. Similarly, unusual transactions, like unexpected large transfers, can be halted or reversed to prevent potential fraud. Operational errors…
cointelegraph.com