The renowned payment platform PayPal Holdings Inc. is launching a stablecoin, PayPal USD (PYUSD). The institution seeks to establish its dominance in digital payments through a decentralized payment infrastructure. The stablecoin being the first by a large financial company could boost digital token payment adoption.
PayPal’s stablecoin is issued by Paxos Trust Co. a blockchain financial institution. PYUSD is pegged to the dollar and backed by U.S. dollar deposits, short-term Treasuries and similar cash equivalents. “PayPal’s new stablecoin PYUSD will be gradually available to the company’s customers in the US,” the announcement said.
Before now, PayPal has been making moves to launch the stablecoin but paused its plans until the announcement today. The pause ensued from the tight regulatory scrutiny of cryptocurrencies.
However, according to Jose Fernandez da Ponte, head of PayPal’s blockchain and digital currencies, now “the company believes the regulatory environment is progressing toward more clarity and sees rising demand for an alternative stablecoin because of how concentrated the market is.”
PYUSD is designed to be exchanged for dollars and other cryptocurrencies available on PayPal’s network and can be used to settle purchase fees. The stablecoin will be issued on Ethereum and will soon be available on PayPal’s Venmo but can also be transferred to compatible third-party wallets outside the PayPal network.
While PayPal keeps an eye on use cases like remittances and micropayments, initially, PYUSD will be used mainly in the cryptocurrency and web3 sectors.
Stablecoin regulation is still being pedalled by regulators. The House Financial Services Committee championed by Patrick McHenry last month pushed a bill to regulate crypto stablecoins.
McHenry said in a statement on PayPal’s launch that “stablecoins—if issued under a clear regulatory framework—hold promise as a pillar of our 21st-century payments system. Congress is making significant, bipartisan progress on legislation to ensure the U.S. leads the financial system of the future.”
The PYUSD issuer was the issuer for the Binance USD (BUSD) but was directed by the New York State Department of Financial Services to stop issuing the stablecoin citing “several unresolved issues related to Paxos’s oversight of its relationship with Binance.” The NYSDF designated BUSD security in June.
PayPal, which was granted a license last year, will have PYUSD regulated as a product in the state of New York. Paxos on the other hand is subject to regulatory oversight by NYDFS. PYUSD Chief Executive Officer Dan Schulman said PayPal is discussing with US regulators and policymakers as it launches PYUSD.
Following the launch, PayPal disclosed that Paxos will publish monthly reports detailing the assets backing PYUSD and its reserve from September.
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