According to a press release, payment company PayPal launched a U.S.-backed stablecoin called PayPal USD (PYUSD). The digital asset is supported by short-term US treasuries and their cash equivalents, and other assets in the nascent sector, such as Tether (USDT) and USD Coin (USDC), are redeemable on a 1:1 parity for its underlying.
PayPal Joins Stablecoin Sector With US-Backed Digital Asset
Per the release, PayPal’s stablecoin is issued by the Paxos Trust Company. The digital asset will be available to “eligible US customers” for now.
The stablecoin enables users to perform transfers within the platform and with compatible external wallets. The asset can also be used for purchases and exchange for other cryptocurrencies, such as Bitcoin, Ethereum, Litecoin, etc.
Dan Schulman, president, and CEO of the payment company, stated the following regarding the launch and its potential to improve payment instruments:
The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the U.S. dollar. Our commitment to responsible innovation and compliance, and our track record delivering new experiences to our customers, provides the foundation necessary to contribute to the growth of digital payments through PayPal USD.
The release claims that PayPal aims to develop a bridge between the Web3 space and the legacy financial sector. They want to “connect” consumers, developers, merchants, and other actors via their stablecoin.
DeFi The Key For PayPal’s Stablecoin To Succeed?
The asset was launched with the ERC-20 format on the Ethereum blockchain. The company hinted at integrating crypto-based services, including wallets and Web3 applications.
Legal expert Collins Belton believes PYUSD’s integration with decentralized finance (DeFi) will make all the difference for the recently launched asset:
This is actually quite interesting and could be huge, especially given Paxos’ robust legal structure. With enough on chain liquidity and integration into PayPal, hard to see other stables competing without some type of regulatory or unknown commercial moat. Success here will depend on how deeply integrated PayPal integrates PYUSD and liquidity on chain/interoperability with DeFi.
The newly issued stablecoin is coming into a sector with tough competition. Tether’s USDT dominates the industry, commanding a $90 billion market cap, followed by USDC’s $26 billion.
In addition, Tether just reported $1 billion in profits for its Q2, 2023. The company has become one of the world’s largest holders of US treasury bills, and its position seems solidifying quarter after quarter.
Cover image from Unsplash, chart from Tradingview