Stablecoins — which link their value to a mainstream currency so as to avoid wild swings in valuation — have not yet become mainstream in the payments market. PayPal hopes to change this by launching a coin with the full support of its own sizable payments business.
PayPal on Monday launched PayPal USD, a stablecoin the payment company says is backed by U.S. dollars, short-term U.S. Treasuries and similar cash equivalents.
PayPal's strength in a challenging stablecoin market is it can offer product breadth and large user base. Other crypto payment systems had to build their own audience and technology from scratch.
"You'll likely be able to trade crypto through PayPal, make payments, transfers and cash out directly to your bank account," said Brandon Zemp, a blockchain consultant and author.
Other stablecoin projects and financial institutions don't yet do this well, Zemp added. "Stablecoins are great, but it's better to have the infrastructure around it to make it more impactful. That is PayPal's advantage."
Consumers who buy PayPal USD will be able to transfer the stablecoin between PayPal and compatible external wallets, execute P2P payments, fund purchases by selecting PayPal USD at checkout, and convert PayPal-supported cryptocurrencies to and from PayPal USD.
Stablecoins are backed by traditional currency on a 1:1 basis, in theory making them immune to the market volatility associated with other cryptocurrencies such as bitcoin. But stablecoins are not entirely immune. The
Because stablecoins are backed by traditional currency, they are considered more likely to be used for payments at the point of sale than other crypto, though there has
To this point, stablecoins have served as an important link between cryptocurrencies and traditional currency, according to James Wester, director of cryptocurrency and co-head of payments at Javelin Strategy & Research.
As digital currencies and digital assets begin to play a larger role for online commerce and experiences, there has been a growing need for a currency or token that consumers can access and use more easily, Wester said.
"For PayPal to attempt to address that need, especially now while the regulatory environment around stablecoins is still unsettled, is noteworthy," Wester said. "It's especially important because PayPal's reach in online commerce is so big that anything they do in the crypto or digital asset space touches potentially hundreds of millions of accounts."
And with that reach comes the need for all of the risk, compliance, regulatory approvals, and everything else that is necessary for companies to operate in financial services and payments, Wester said. "So this is a big bet by PayPal," he said.
PayPal, which did not provide comment by deadline, has been
PayPal has about 30 million merchant accounts and about 433 million consumer accounts. PayPal's Venmo has about 80 million users. Both PayPal and Venmo also support cryptocurrency by enabling users to buy, hold and sell, and through products such as PayPal's Checkout with Crypto, which enables merchants to accept crypto for payment and settle in U.S. dollars. PayPal USD provides a currency that can connect to crypto and payment services.
PayPal USD is the only stablecoin supported in PayPal's network, and is issued on the Ethereum blockchain. That will make it available to external developers, wallets and Web3 applications, according to PayPal, which added that most current stablecoin payments are in Web3 environments.
"The interesting thing about this announcement is that PayPalUSD will be the only stablecoin supported on PayPal," said Aaron McPherson, principal at AFM Consulting. "This means they have made an affirmative decision not to support USDC, which may mean they see Circle Financial as a potential competitor."
The early uses will include digital payments in virtual environments, transfers including international remittances, supporting payments to content creators and serve as a payments conduit for merchant brands to support digital assets.
"Not only does PayPal have an established presence in the financial world, a $64 billion valuation and $27 billion revenue yearly, but it has an existing payments infrastructure that dates back to 1998," Zemp said.
Paxos Trust Company will issue PayPal's stablecoin. PayPal received a BitLicense in New York in 2022, joining about two dozen other companies including Block, Circle and Ripple.
Paxos also supports a PayPal service that enables U.S. consumers to buy, hold and sell cryptocurrency through PayPal's digital wallet. In September Paxos will publish a monthly reserve report that outlines PayPal's USD reservices.
PayPal USD joins a
Circle has tried to broaden the appeal of stablecoins by partnering with blockchain firm
And
"While use cases exist, the question is whether there is sufficient demand for another stablecoin," said Alenka Grealish, principal analyst for financial services at Celent.
USDC has supported uses such as supporting a
"[PayPal's launch'] is a strong signal that near-instant, borderless, and programmable payments in the form of stablecoins are here to stay. Existing payment systems are outdated and digital dollars like USDC, leveraging the power of market neutral public blockchains, serve as the foundation for thousands of companies, neobanks, capital markets, and financial institutions," said Jeremy Allaire, CEO and Co-Founder of Circle, in an email.
