However, stablecoins, which are currently valued at around $120 billion, have raised concerns among policymakers. Top financial regulators, including the Treasury Department, have recommended implementing a framework for stablecoins and limiting their issuance to banks due to potential risks to the broader financial system. However, lawmakers have yet to approve any rules regarding stablecoins.
Tether, a Hong Kong-based stablecoin issuer, made headlines last year when it refused to comply with sanctions imposed by the U.S. Treasury targeting a crypto service involved in laundering billions of dollars in stolen digital assets for North Korean hackers and others. The collapse of TerraUSD, another stablecoin, in May 2022 resulted in a domino effect, causing other crypto companies to fail.
PayPal already allows users to buy bitcoin and other cryptocurrencies and use them for transactions. The company anticipates that its stablecoin will be used for payments in online games, Web3 applications, and international transfers.
According to PayPal CEO Dan Schulman, “The shift towards digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the U.S. dollar.”
PayPal’s stablecoin, PayPal USD, will be redeemable for $1 and will be fully backed by U.S. dollars, short-term government debt, and highly liquid assets.
To issue the stablecoin, PayPal has partnered with Paxos Trust, the same firm responsible for issuing the stablecoin of embattled crypto exchange Binance. However, Paxos Trust has faced legal challenges in the past, with the Securities and Exchange Commission planning to sue them for violating investor protection laws related to the sale of their token. The New York Department of Financial Services also directed Paxos to halt the issuance of the token.
PayPal declined to comment on this matter and referred to a spokesperson from Paxos Trust, who stated that they believe their stablecoins are not securities and are committed to providing safe and compliant infrastructure solutions for global enterprises.
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