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  • J Huang and M Bacina

PayPal launches USD stablecoin, pushing for more payments in crypto

Global payment company PayPal is finally launching its US dollar pegged stablecoin, becoming the first major US financial company to push deeper into crypto payments despite regulatory clampdown and the so-called "crypto-winter".

The PayPal USD (PYUSD) is designed to maintain a stable $1 USD value. According to PayPal's website, PayPal USD is:

a stablecoin that’s fully backed by US dollar deposits, US treasuries, and similar cash equivalents. You can buy and sell 1 PYUSD for 1 USD on PayPal.

Users of PayPal USD can buy, sell, hold, and transfer PayPal USD in PayPal's app or on the website. A user can send PayPal USD to another user on PayPal without fees.

Since PayPal USD is Ethereum based, users can also send it to Ethereum wallet addresses that accept PYUSD in a few steps.

PayPal USD can be used to pay "millions of" online stores via PayPal (PayPal will first sell the stablecoin for fiat). PayPal USD can also be converted to other cryptocurrencies (and vice versa) for a fee - effectively meaning that PayPal will offer a kind of traditional crypto exchange function.

PayPal's website explains the concept of stablecoins:

Stablecoins are a type of cryptocurrency designed to have a steady value over time relative to a reference asset, for example, the U.S. dollar.

and the tremendous benefits they bring:

They can provide inclusive, broad access to the financial system, and can enable fast and efficient money movement. Stablecoins are programmable, offering developers a useful digital currency that can be built into public blockchains and can help link the traditional economy and Web3.

At this stage, PayPal USD will only be available to US users who have an eligible US PayPal Balance account. PayPal has not mentioned whether PYUSD will be available for purchase on any other centralised or decentralised crypto exchanges.

PayPal USD is issued by Paxos Trust Company, a licensed limited purpose trust company subject to regulation by the New York State Department of Financial Services (NYDFS). In June 2022, PayPal was issued a BitLicense by NYDFS after previously obtaining a conditional BitLicense.

Paxos said it will publish a public monthly Reserve Report for PayPal USD that outlines the instruments composing the reserves backing PayPal USD, starting in September 2023. Paxos said it will also publish a third-party attestation of the value of PayPal USD reserve assets. The attestation will be issued by an independent accounting firm and conducted in accordance with standards established by the American Institute of Certified Public Accountants.

The issuance of stablecoin shows further support by traditional financial services and that payment business such as PayPal are determined to push further into crypto. While stablecoins have been around for some time, the collapse of Luna/Terra emphasises the need of confidence in the reserves and "peg" any stablecoin purports to maintain. The entrance of key players such as PayPal will likely provide a trustworthy alternative to existing stablecoin and a powerful option for traditional finance to further integrate with Web3.

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