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Technology


PAYPAL LAUNCHES A STABLECOIN IN LATEST CRYPTO PUSH

By  Anna Irrera August 07, 2023, 9:45 a.m. EDT 4 Min Read
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PayPal Holdings Inc. is rolling out a stablecoin, the first by a large financial
company and a potentially significant boost to the sluggish adoption of digital
tokens for payments. 

PayPal USD (PYUSD) is issued by Paxos Trust Co. and fully backed by U.S. dollar
deposits, short-term Treasuries and similar cash equivalents, the San Jose,
California-based payments company said on Monday. It's pegged to the dollar and
will be gradually available to PayPal's customers in the U.S.



With PYUSD, chief executive officer Dan Schulman is seeking to cement PayPal's
dominance in digital payments by leaning on technology that enables instant and
lower-cost transfers without a central intermediary. PayPal shares have slumped
more than 35% in the past 12 months, the sixth-worst performer on the Nasdaq 100
Index, as the pandemic-era surge in online payments abated.  




"The vision over time is that this becomes a part of the overall payments
infrastructure," Schulman, who's preparing to step down in coming months, said
in an interview. 

Stablecoins — crypto tokens that are pegged to an asset like the dollar — have
been around for almost a decade, but they're mostly used by traders to move
digital assets between exchanges and have made limited inroads into consumer
payments. There's roughly $126 billion worth of stablecoins in circulation,
according to CoinGecko, the biggest by far being Tether Holdings Ltd.'s USDT. 

Some have been controversial: A high-profile attempt by Meta Inc. unraveled last
year after an intense regulatory backlash. PayPal itself paused work on PYUSD in
February as regulators stepped up scrutiny of cryptocurrencies. 

The company now believes the regulatory environment is "progressing toward more
clarity" and sees rising demand for an alternative stablecoin because of how
concentrated the market is, Jose Fernandez da Ponte, head of PayPal's blockchain
and digital currencies team, said in an interview.

PYUSD is designed to be redeemable for dollars at all times and can also be
exchanged for other cryptocurrencies available on PayPal's network. It can be
used to fund purchases and will soon be available on PayPal's popular payments
app Venmo. Users will eventually be able to send their token holdings between a
PayPal and a Venmo wallet. 

The coin can also be moved to compatible third-party wallets outside the PayPal
network.  


INSTANT TRANSFERS

PayPal, which has more than 431 million active accounts globally, first launched
cryptocurrency services in 2020. It allows users to buy, sell and make payments
in a handful of tokens like Bitcoin through its platform.

The company last week said it had to set aside more money in the second quarter
to cover souring loans it had made to merchants, triggering a 12% one-day rout
in its shares. PayPal has expanded the services it offers to the millions of
consumers and merchants on its many platforms, including working-capital loans
and remittances. 

Initially, PayPal expects PYUSD to be used mainly in the cryptocurrency and web3
sectors, like for trading in and out of other digital tokens and in-game
payments, before gradually gaining adoption in areas like remittances and
micro-payments. 

Proponents of stablecoins have long argued that they're a superior means of
achieving cheap, instant money transfers and payments. But they've also faced
opposition from central banks who are busy developing their own digital
currencies and, in the case of USDT, speculation about the quality of reserves. 


PAXOS'S BUSD SETBACK

In perhaps the most high-profile setback for stablecoins, one called TerraUSD
imploded in May 2022 when the complex algorithmic system backing it failed,
triggering a wider crash in cryptocurrencies. Its inventor, South Korean citizen
Do Kwon, has been charged with fraud by US prosecutors, who say the episode cost
investors roughly $40 billion. 

"The past year's events have cast serious doubts on the ability of stablecoins
to function as money," Agustin Carstens, the head of the Bank for International
Settlements, said in a speech in February. "Stablecoins must import their
credibility from sovereign fiat currencies." 

In February, the New York State Department of Financial Services said it had
directed Paxos to stop issuing a stablecoin branded by crypto exchange Binance
known as BUSD. The New York regulator said at the time that its decision was the
result of "several unresolved issues related to Paxos's oversight of its
relationship with Binance."

Paxos is subject to regulatory oversight by NYDFS, and PYUSD will be a regulated
product in the state of New York. PayPal was granted a local crypto license by
the regulator in June last year. 

PayPal held extensive discussions with U.S. regulators and policymakers as it
prepared to introduce PYUSD, Schulman said. "We are in a place right now in
these conversations that people feel comfortable with a respected,
well-regulated U.S. financial entity moving into the stablecoin space and think
that it's an important initial move," he said.

Starting in September, Paxos will publish monthly reports detailing the assets
backing PYUSD, PayPal said. Paxos will also publish a third-party attestation by
an accounting firm on PYUSD's reserve assets.

— With assistance from Emily Nicolle and Sidhartha Shukla

Anna Irrera

Bloomberg News
Technology Cryptocurrency PayPal Digital payments
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