Share Dialog
Share Dialog
On August 7, payments giant PayPal announced the launch of PayPal USD (PYUSD), a US dollar stablecoin, making it the first mainstream financial services company to adopt cryptocurrencies for payments and transfers.

PayPal USD (PYUSD), which is backed by US dollar deposits and short-term US treasury bills, is described as being issued by Paxos Trust Co and will be gradually made available to PayPal customers in the US. As with Tether and Circle, reserves will be held in the form of U.S. Treasury Bills. The interest earned on these treasury bills is shared between PayPal and Paxos.
The move could be a new attempt by the payments company to seek to diversify its earnings, with PayPal shares down 33 percent over the past 12 months in the post-pandemic era as online payments in North America have lost momentum, and the company reported lackluster earnings at an adjusted operating margin of 21.4 percent in the second quarter, missing estimates of 22 percent. Shares of PayPal fell 7 percent in after-hours trading last Wednesday as investors were disappointed with quarterly operating margins.
In his announcement, PayPal President and CEO Dan Schulman said he hopes to further solidify PayPal's dominance of the digital payments space with PYUSD by relying on technology that enables instant and low-cost transfers without the need for a centralized intermediary, saying, "Over time, our vision is to become an integral part of the overall payments infrastructure over time, our vision is to become part of the entire payments infrastructure."
PayPal's announcement pushed its shares up 3 percent in mid-day trading Monday.
PayPal's Road to Crypto
PayPal, which has more than 431 million active accounts worldwide, debuted its cryptocurrency service in 2020. It allowed users to buy, sell, and pay for a handful of tokens such as Bitcoin through its platform. Then, in 2021, PayPal announced the launch of Checkout with Crypto, a feature that allows consumers to use cryptocurrency to checkout at millions of online businesses. Last year, the company gave users the ability to transfer cryptocurrency from their accounts to other wallets and exchanges.
The company has been associated with cryptocurrencies before, so the launch of a stablecoin isn't surprising, and PayPal's brand name makes it significant to the crypto industry, said Stephen Biggar, an analyst at Argus Research Corp.
PYUSD is intended to be readily convertible to U.S. dollars, as well as to other cryptocurrencies offered on the PayPal network. It can be used to fund purchases and will soon be available on PayPal's popular payment app, Venmo. Users will eventually be able to send their token holdings between PayPal and Venmo Wallet. The token can also be transferred to compatible third-party wallets outside of the PayPal network.

The PayPal stablecoin is issued by Paxos, a veteran player in the stablecoin space and a brokerage partner for PayPal's cryptocurrency buying and selling services.Paxos is regulated by the NYDFS, and PYUSD will become a New York State regulated product. PayPal received a local cryptocurrency license from the regulator in June of last year, and Paxos previously issued BUSD, a stablecoin pegged to the U.S. dollar and branded by CoinShares, which was shut down by the New York State Department of Financial Services in February of this year.
PayPal expects PYUSD to initially be used primarily in the cryptocurrency and web3 space, such as for incoming and outgoing transactions and in-game payments for other digital tokens, before gradually being adopted in areas such as money transfers and micropayments.
Schulman said PayPal had extensive discussions with U.S. regulators and policymakers as it prepared to launch PYUSD. He said, "We are now in a position in those conversations where people are comfortable with a respected, well-regulated U.S. financial entity entering the stablecoin space and see this as an important initial move."
PayPal said that starting in September, Paxos will release monthly reports detailing the assets backing PYUSD, and Paxos will also release third-party certifications from accounting firms for PYUSD reserve assets.
Dilemmas Facing Stablecoins
While stablecoins have been around for years, they have yet to successfully enter the mainstream consumer payments ecosystem. The crypto industry has struggled with regulatory resistance over the past 12 months, which has been exacerbated by a series of collapses and a decline in the overall market capitalization of stablecoins.
According to CryptoQuant, the market capitalization of USD Coin (USDC), the largest U.S.-dollar stablecoin issued by a U.S. company, has declined by about 41 percent since Jan. 1. USDC is managed by Centre's consortium, which was founded by Circle and includes cryptocurrency exchange Coinbase.

Attempts by some tech giants to launch stablecoins have been met with strong opposition from financial regulators and policymakers.Meta (then Facebook) had planned to launch a stablecoin, Libra, in 2019, but it was thwarted by regulators concerned about the potential to destabilize global finance.
A range of major economies, from the UK to the EU, have set rules governing stablecoins, with the EU's policy due to come into effect in June 2024.The EU's policy is expected to be implemented in the next few years.
Last month, the U.S. House of Representatives Financial Services Committee also introduced a bill to create a federal regulatory framework for stablecoins that would focus on rules for the registration and approval process for stablecoin issuance workshops.
In an interview with Bloomberg, Jose Fernandez da Ponte, head of PayPal's Blockchain and Digital Currency team, said that the company now sees the regulatory environment moving "in a clearer direction" and that demand for alternative stablecoins is growing due to market concentration.
Walter Hessert, head of strategy at Paxos, told Coindesk that there is a clear difference between PYUSD and its competitors, thanks to Paxos' status as a trust company regulated by the New York Department of Financial Services (NYDFS). This means that if Paxos goes bankrupt, its regulator, NYDFS, will step in and PYUSD will be protected from bankruptcy. This way, customers won't unknowingly become creditors in the event of bankruptcy, and funds will be returned to each token holder.
"As an alternative stablecoin in the U.S., YUSD could lead to an impact on the payment revenues that primarily drive Mastercard and Visa, and it will also help the industry to further develop and push for sensible regulation," commented Paolo Ardoino, Tether's CTO.
On August 7, payments giant PayPal announced the launch of PayPal USD (PYUSD), a US dollar stablecoin, making it the first mainstream financial services company to adopt cryptocurrencies for payments and transfers.

PayPal USD (PYUSD), which is backed by US dollar deposits and short-term US treasury bills, is described as being issued by Paxos Trust Co and will be gradually made available to PayPal customers in the US. As with Tether and Circle, reserves will be held in the form of U.S. Treasury Bills. The interest earned on these treasury bills is shared between PayPal and Paxos.
The move could be a new attempt by the payments company to seek to diversify its earnings, with PayPal shares down 33 percent over the past 12 months in the post-pandemic era as online payments in North America have lost momentum, and the company reported lackluster earnings at an adjusted operating margin of 21.4 percent in the second quarter, missing estimates of 22 percent. Shares of PayPal fell 7 percent in after-hours trading last Wednesday as investors were disappointed with quarterly operating margins.
In his announcement, PayPal President and CEO Dan Schulman said he hopes to further solidify PayPal's dominance of the digital payments space with PYUSD by relying on technology that enables instant and low-cost transfers without the need for a centralized intermediary, saying, "Over time, our vision is to become an integral part of the overall payments infrastructure over time, our vision is to become part of the entire payments infrastructure."
PayPal's announcement pushed its shares up 3 percent in mid-day trading Monday.
PayPal's Road to Crypto
PayPal, which has more than 431 million active accounts worldwide, debuted its cryptocurrency service in 2020. It allowed users to buy, sell, and pay for a handful of tokens such as Bitcoin through its platform. Then, in 2021, PayPal announced the launch of Checkout with Crypto, a feature that allows consumers to use cryptocurrency to checkout at millions of online businesses. Last year, the company gave users the ability to transfer cryptocurrency from their accounts to other wallets and exchanges.
The company has been associated with cryptocurrencies before, so the launch of a stablecoin isn't surprising, and PayPal's brand name makes it significant to the crypto industry, said Stephen Biggar, an analyst at Argus Research Corp.
PYUSD is intended to be readily convertible to U.S. dollars, as well as to other cryptocurrencies offered on the PayPal network. It can be used to fund purchases and will soon be available on PayPal's popular payment app, Venmo. Users will eventually be able to send their token holdings between PayPal and Venmo Wallet. The token can also be transferred to compatible third-party wallets outside of the PayPal network.

The PayPal stablecoin is issued by Paxos, a veteran player in the stablecoin space and a brokerage partner for PayPal's cryptocurrency buying and selling services.Paxos is regulated by the NYDFS, and PYUSD will become a New York State regulated product. PayPal received a local cryptocurrency license from the regulator in June of last year, and Paxos previously issued BUSD, a stablecoin pegged to the U.S. dollar and branded by CoinShares, which was shut down by the New York State Department of Financial Services in February of this year.
PayPal expects PYUSD to initially be used primarily in the cryptocurrency and web3 space, such as for incoming and outgoing transactions and in-game payments for other digital tokens, before gradually being adopted in areas such as money transfers and micropayments.
Schulman said PayPal had extensive discussions with U.S. regulators and policymakers as it prepared to launch PYUSD. He said, "We are now in a position in those conversations where people are comfortable with a respected, well-regulated U.S. financial entity entering the stablecoin space and see this as an important initial move."
PayPal said that starting in September, Paxos will release monthly reports detailing the assets backing PYUSD, and Paxos will also release third-party certifications from accounting firms for PYUSD reserve assets.
Dilemmas Facing Stablecoins
While stablecoins have been around for years, they have yet to successfully enter the mainstream consumer payments ecosystem. The crypto industry has struggled with regulatory resistance over the past 12 months, which has been exacerbated by a series of collapses and a decline in the overall market capitalization of stablecoins.
According to CryptoQuant, the market capitalization of USD Coin (USDC), the largest U.S.-dollar stablecoin issued by a U.S. company, has declined by about 41 percent since Jan. 1. USDC is managed by Centre's consortium, which was founded by Circle and includes cryptocurrency exchange Coinbase.

Attempts by some tech giants to launch stablecoins have been met with strong opposition from financial regulators and policymakers.Meta (then Facebook) had planned to launch a stablecoin, Libra, in 2019, but it was thwarted by regulators concerned about the potential to destabilize global finance.
A range of major economies, from the UK to the EU, have set rules governing stablecoins, with the EU's policy due to come into effect in June 2024.The EU's policy is expected to be implemented in the next few years.
Last month, the U.S. House of Representatives Financial Services Committee also introduced a bill to create a federal regulatory framework for stablecoins that would focus on rules for the registration and approval process for stablecoin issuance workshops.
In an interview with Bloomberg, Jose Fernandez da Ponte, head of PayPal's Blockchain and Digital Currency team, said that the company now sees the regulatory environment moving "in a clearer direction" and that demand for alternative stablecoins is growing due to market concentration.
Walter Hessert, head of strategy at Paxos, told Coindesk that there is a clear difference between PYUSD and its competitors, thanks to Paxos' status as a trust company regulated by the New York Department of Financial Services (NYDFS). This means that if Paxos goes bankrupt, its regulator, NYDFS, will step in and PYUSD will be protected from bankruptcy. This way, customers won't unknowingly become creditors in the event of bankruptcy, and funds will be returned to each token holder.
"As an alternative stablecoin in the U.S., YUSD could lead to an impact on the payment revenues that primarily drive Mastercard and Visa, and it will also help the industry to further develop and push for sensible regulation," commented Paolo Ardoino, Tether's CTO.

Subscribe to yaletown

Subscribe to yaletown
<100 subscribers
<100 subscribers
No activity yet