On Monday, global payment services giant PayPal launched a new dollar-backed stablecoin. PayPalUSD or PYUSD, is a cryptocurrency supported by U.S. dollar deposits and short-term US Treasuries held in the company’s reserves. The stablecoin’s value will remain in parity with the dollar.
Soon after the announcement, the share price of PayPal rose 2.6% to $63.66.
According to PayPal, the stablecoin will be made available to the company’s U.S. customers “in the coming weeks”.
Stablecoins are cryptocurrencies whose monetary value is pegged to stable assets like fiat currencies or gold. In most cases, these digital currencies are backed by fiat monies such as the dollar, euro, or yen. Stablecoins are predominantly used for trading highly volatile crypto assets like Bitcoin (BTC) and Ether (ETH) in the market.
Payments Giant PayPal Launches PYUSD Stablecoin
The instant payments platform has partnered with stablecoin issuer Paxos Trust Co., who will release the token in the United States. Using PYUSD, customers can make peer-to-peer payments, fund purchases at checkouts, and initiate transfers between other PayPal users and digital wallets that support the asset.
American customers can purchase the token using their PayPal balance from the official app or website at $1 per PYUSD, and redeem the stablecoin for dollars at any time. Users will also be able to convert cryptocurrencies supported by PayPal, including Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), and Litecoin (LTC), to and from PYUSD.
Although it did not provide a definite date, PayPal says it will make PayPal USD available on its mobile payment service platform Venmo “soon”.
The company’s move to issue its own stablecoin did not come as a surprise as it had already been letting users buy, store, transfer, and sell cryptocurrencies through the app since October 2020.
Last year, PayPal was granted a full BitLicense by the New York Department of Finacial Services (NYDFS), under which customers in New York state can buy and sell cryptocurrencies.
Paxos to Custody Reserve Assets Backing PayPal USD and Manage the Token’s Issuance
Paxos, who acts as a custodian for the reserve assets backing PYUSD, will publish monthly reports detailing the status of the instruments pegged to the Ethereum-based stablecoin starting September 2023.
The blockchain infrastructure firm will also provide a public third-party attestation of the value of PayPal USD’s reserve assets, which will be granted by an independent accounting agency that will conduct the process in accordance with the attestation requirements of the American Institute of Certified Public Accountants (AICPA).
Dan Schulman, the president and CEO of PayPal, emphasized that the company’s shift towards digital currencies required a stable instrument that is both digitally native and linked to a fiat currency like the U.S. dollar.
He added that PayPal’s commitment to “responsible innovation and compliance” and its track record of delivering the latest experiences to customers provides the necessary foundation that will support the growth of digital payments through PYUSD.
Major Economies Working to Bring Cryptocurrencies Under Their Regulatory Parameters
This won’t be the first time mainstream companies have made attempts to enter the stablecoin market. In 2019, Meta (formerly Facebook) came out with a plan to introduce its Libra stablecoin but was met with regulatory scrutiny after authorities voiced concerns that the cryptocurrency could disrupt global financial stability.
Since last year’s astronomical collapse of the Terra USD stablecoin, which saw investors lose almost $60 billion in value, a slew of major economies have started to take stringent action against the cryptocurrency sector.
The U.K., U.S., and EU are in discussions on how to regulate crypto assets, especially stablecoins as most of them are pegged directly to the value of their respective fiat currencies.
In the U.S., the Securities and Exchange Commission (SEC) has started to crack down on stablecoin issuers. Earlier this year, Paxos was ordered to stop minting Binance’s BUSD stablecoin after the agency accused the crypto exchange to have violated regulatory compliance. Paxos Trust Co. was the custodian of Binance’s dollar reserves backing BUSD and also managed the token’s issuance and distribution.
With its upcoming stablecoin offering, PayPal is also stepping into the spotlight that will see regulatory bodies like the SEC and the Commodities and Futures Trading Commission (CFTC) keep a close watch on the company and its crypto services.
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