PayPal's shares soared by 2.66% on the day of the announcement. The bold move demonstrates a vote of confidence in the tumultuous cryptocurrency realm, which has seen a string of obstacles, including regulatory challenges and high-profile collapses, over the past year.
Paving a New Path with Stablecoins
Stablecoins have been part of the cryptocurrency landscape for some time now. These tokens have their monetary worth tied to stable assets to guard against extreme fluctuations. However, they have yet to carve a substantial foothold in the everyday consumer payments sector.
Up until now, stablecoins were primarily employed for trading cryptocurrencies such as bitcoin and ether. Among the known stablecoins, Tether stands as the largest, with USD Coin trailing closely behind.
Attempts by mainstream businesses to introduce stablecoins have historically faced staunch resistance from regulators and lawmakers. Notably, Meta's 2019 attempt to introduce a stablecoin called Libra met failure due to concerns about potential disruption to the global financial stability.
Governments and regulatory bodies, including those in Britain and the European Union, have laid down rules to oversee stablecoins. The EU's regulations are slated for enforcement in June 2024.
"PayPal's profile, though less controversial than Facebook, will definitely attract attention on Capitol Hill and from Federal Reserve and Securities and Exchange Commission," Ian Katz, Capital Alpha Partners' managing director, observed.
Stablecoins: Building a Future Payment System
In a recent development, the U.S. House Financial Services Committee has progressed a bill to set a federal regulatory structure for stablecoins. This will shape the registration and approval criteria for stablecoin issuers.
Commenting on PayPal's announcement, the committee's Republican chair, Representative Patrick McHenry, expressed that stablecoins "hold promise as a pillar of our 21st century payments system."
"America is at a crucial junction to remain at the forefront of digital asset innovation. Congress is making significant, bipartisan progress on legislation to ensure the U.S. leads the future financial system," he added.
PayPal's stablecoin, coined as PayPal USD, is supported by U.S. dollar deposits and short-term U.S Treasuries, issued by Paxos Trust Co. It will gradually be made available to U.S. PayPal customers.
Users can redeem the token for U.S. dollars at any time and use it to trade other cryptocurrencies available on PayPal, including bitcoin.
A statement by Paxos on the messaging platform X heralded, "PYUSD is the first of its kind, representing the next phase of U.S. dollars on the blockchain. This is not just a milestone moment for Paxos & PayPal, but for the entire financial industry."
Paxos 🤝 PayPal
— Paxos (@Paxos) August 7, 2023
Thrilled to be partnering with @PayPal to bring PYUSD, the world’s safest dollar-backed digital asset, to hundreds of millions of consumers and merchants worldwide.
PYUSD is the first of its kind, representing the next phase of US dollars on the blockchain. This…
This innovation follows Visa's announcement in 2021, which allowed the use of cryptocurrencies to settle transactions on its payment network, further cementing the role of digital currencies in the contemporary financial landscape.
