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PayPal has taken a bold step by launching its own stablecoin, making it the first major financial institution to venture into crypto payments at a time when US regulators are intensifying their scrutiny of digital assets.
The company, based in San Jose, announced on Monday the release of PayPal USD, a stablecoin tied to the US dollar. This move represents a further expansion of PayPal’s services in the realm of digital currencies.
Despite the increased regulatory actions and concerns among investors, PayPal remains committed to its crypto activities. In contrast, other companies have scaled back their involvement in the crypto market in the US. For instance, fintech group Revolut recently suspended its US crypto activities, citing uncertainties surrounding the market.
Stablecoins are a type of cryptocurrency designed to maintain a stable value relative to a major currency, such as the dollar. They serve as a crucial link between traditional and crypto markets, enabling traders to seamlessly move in and out of trades and conduct cross-border transfers without the need for multiple bank accounts or high fees.
Since 2020, PayPal has allowed trading in bitcoin and ether, two of the most popular cryptocurrencies.
“The shift towards digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the US dollar,” explained Dan Schulman, PayPal’s CEO.
However, the development of a widely adopted crypto payments network has been slow among traditional finance and tech firms. Meta, for example, abandoned its Diem stablecoin project, which involved PayPal and credit card providers like Mastercard, due to regulatory opposition.
Gautam Chhugani, Senior Analyst of Global Digital Assets at Bernstein, emphasized that for widespread adoption, digital asset payments need to be available on mainstream apps like PayPal. He highlighted the absence of fees from third-party rails like Mastercard and Visa, making PayPal’s stablecoin an attractive option for sending and receiving money without high charges.
“If PayPal succeeds, then other payment apps and consumer financial services brands will want to develop their own stablecoins,” added Chhugani.
PayPal USD will be issued by Paxos, a company regulated by the New York State Department of Financial Services. The stablecoin will have a one-to-one redeemable value against the US dollar.
Last year, the market for privately issued stablecoins suffered a significant setback when TerraUSD collapsed in May, leading to a decline in cryptocurrency prices and the failure of several digital asset companies. Do Kwon, the creator of TerraUSD, is currently facing eight criminal charges, including fraud. By launching its stablecoin, PayPal poses a direct challenge to Tether and Circle, the issuers of the most widely traded stablecoins.
The reserves backing PayPal’s stablecoin will consist of US dollar deposits, short-term Treasuries, and other assets.
PayPal customers will have the ability to transfer the stablecoin between their wallets and external wallets, send payments to friends and family, and make online purchases. They can also convert PayPal USD into other digital tokens supported by the platform, including bitcoin and ether.
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